Key Takeaways
- Broadcom stock fell 22% in the month to Nov. 6 as AI chip stocks sold off, and Microsoft reportedly hit a record high on Nov. 7.
- For a 20-year hold, the dividend to own has the most room in its free cash flow and the room to keep growing.
- Broadcom’s dividend took 31% of its free cash flow over the twelve months to Aug. 2, and Microsoft’s took 45% over the twelve months to Sept. 30.
- The risks to watch are Broadcom’s reliance on a handful of big AI customers and Microsoft’s plan for about $170 billion of capital spending this calendar year.
Holding a dividend stock for 20 years means trusting the business to keep raising its payout through more than one tech cycle. And this fall, the AI boom gave two of tech’s dividend payers very different months.
Broadcom (AVGO) stock fell 22% in the month to Nov. 6. Its dividend held steady. On Sept. 2, the board declared $0.65 a share for the quarter, the same as before.
Microsoft (MSFT), meanwhile, reportedly hit a record high on Nov. 7. So which one would I hold for the next 20 years?
| Metric | Broadcom (AVGO) | Microsoft (MSFT) |
|---|---|---|
| Dividend yield | 1.0% | 0.7% |
| Dividend growth, 5 years | 13.2% a year (fiscal 2020-2025) | 10.2% a year (fiscal 2021-2026) |
| Cash dividend payout ratio (TTM) | 31% | 45% |
| Net debt/EBITDA | 0.68x | 0.33x |
| Interest coverage | 14.0x | 50.2x |
| Forward P/E | 17x | 26x |
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Broadcom is swimming in AI cash
AI drives Broadcom’s growth right now. AI semiconductor revenue rose 221% from a year earlier to $16.7 billion in the quarter ended Aug. 2. On its September call, management said it has secured the supply to reach about $115 billion of AI revenue in fiscal 2027.
And Broadcom is turning that growth into cash. Free cash flow reached $39.4 billion over the twelve months to Aug. 2, up from $26.9 billion in fiscal 2025, and the dividend took a well-covered 31% of it. Free cash flow has grown every year from $2.69 billion in fiscal 2016 to $26.9 billion in fiscal 2025, and dividends have stayed well inside it:
Its cash dividend payout ratio ran between 41.3% and 50.6% from fiscal 2021 to fiscal 2025, so today’s 31% is lower than any of those years.
But Broadcom’s AI plans rest on six core customers, by management’s count. On Oct. 30, one of its AI customers, Google, gave Marvell a $12.2 billion equity-linked custom-chip deal, and investors started asking how much of that work could move away from Broadcom.
Microsoft is spending its way through the boom
Microsoft is on the buying side of that same AI boom, and its business is growing fast. Revenue rose 19% from a year earlier to $92.3 billion in the quarter ended Sept. 30. Azure grew 48%, and commercial remaining performance obligation rose 73% to $677 billion.
The build-out costs a fortune, though. Microsoft expects more than $50 billion of capital spending in the December quarter and about $170 billion for calendar 2026. Its own goal for fiscal 2027 is to stay free cash flow positive. Free cash flow fell from $74.1 billion in fiscal 2024 to $67.0 billion in fiscal 2026, and dividends paid rose from $21.8 billion to $26.5 billion:
That pushed its cash dividend payout ratio from 29.4% in fiscal 2024 to 39.5% in fiscal 2026, and to 45% over the twelve months to Sept. 30. The dividend is still well covered, but the ratio is climbing.
Microsoft is showing some discipline. September-quarter capital spending came in at $45.2 billion, below the roughly $50.7 billion analysts expected, and CFO Amy Hood said delayed third-party capacity accounted for the gap.
So which dividend wins?
If I could hold just one of these dividend stocks for the next 20 years, it’d be Broadcom.
It has more room in its free cash flow, a 31% payout ratio against Microsoft’s 45%, and faster raises behind it, 13.2% a year against 10.2%.
At that rate, $10,000 in Broadcom would pay about $1,061 in year 20, a 10.6% yield on the original cash. That adds up to about $8,319 over the 20 years. Microsoft would pay about $443 in year 20 and about $4,100 in all, and at those rates its income never passes Broadcom’s.
The selloff has also made Broadcom cheap against its own history. It trades at 17x forward earnings, against a five-year average of 24x:
Microsoft’s dividend is still very safe. It covers its interest 50.2x over and carries net debt of just 0.33x EBITDA. If its spending pays off, there’s plenty of room for raises. It’s just that, over 20 years, I’d rather own the faster-growing dividend with more cash to spare, bought below its usual price.
Of course, Broadcom reports its fiscal fourth quarter on Dec. 9, with its next dividend declaration. That release will show us whether its AI outlook still holds after Google’s deal with Marvell.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
