Applied Materials is poised for significant dividend growth in the coming years, making it an attractive long-term investment.
When it comes to investing for the long term, the potential for sustained income over several decades is a key consideration. For individuals in their early to mid-adulthood, planning for retirement income streams 20, 30, or even 40 years down the line starts with selecting the right stocks today.
Investing in dividend growth stocks is one of the most effective ways to secure a comfortable retirement. While these stocks may not offer high current dividend yields, the power of compounding can lead to substantial payouts in the future if a company can consistently increase its dividends above the rate of inflation.
Applied Materials, a leader in semiconductor equipment, currently offers a modest yield of 0.7%. However, with a long-term perspective, investors have good reason to expect substantial dividend growth over the next five, 10, or 20 years.
Driving growth through technology
Applied Materials is well-positioned for earnings growth, a prerequisite for increasing dividends, thanks to its focus on efficiency and cutting-edge technologies like artificial intelligence (AI) and energy transition. As the largest revenue-generating semiconductor equipment provider with a diverse portfolio, the company has a strong presence in key manufacturing steps such as etch and deposition.
With a track record of strong earnings growth at an average rate of 26% over the past five years, Applied Materials is expected to continue growing its earnings at an impressive rate of 15.6% over the next five years. This growth is driven by the company’s efficient operations, demonstrated by high operating margins and a remarkable return on equity of 43% in the past year.
Applied Materials’ technological expertise positions it well to capitalize on emerging trends in the semiconductor industry, such as gate-all-around transistors and backside power delivery in the AI era, further fueling its earnings growth.
Healthy financials and shareholder returns
Aside from robust earnings growth, Applied Materials has a low payout ratio of just 15.3%, indicating ample room for increasing dividends. The company also prioritizes shareholder returns through significant share repurchases, further enhancing shareholder value.
By focusing on profits from its services business, which accounted for 23.3% of revenue last quarter with strong operating margins, Applied Materials ensures a stable dividend growth trajectory. The recurring nature of services revenue, coupled with a growing installed base and innovative software offerings, provides a solid foundation for double-digit growth in this segment and, consequently, dividend growth for investors.
Overall, Applied Materials’ strategic focus on technology, operational efficiency, and shareholder value makes it a compelling choice for investors seeking long-term dividend growth.
