By Al Root
The promise of artificial intelligence has taken stock markets to all-time highs, to the delight of many -- and the chagrin of dividend investors. There are, however, ways to play the AI trade while getting an acceptable yield, too.
AI is changing everything -- just ask ChatGPT. Alphabet, Amazon.com, Microsoft, and Meta Platforms are spending hundreds of billions a year to build data centers to train and run AI models that can do seemingly anything, from writing college essays to teaching humanoid robots to wash dishes. It's created a virtuous cycle for the many companies that design, build, and power data centers, as well as for those designing the applications.
All that has pushed Nvidia's market value to $4 trillion, and the Magnificent Seven to $20 trillion. And there looks to be more room to run, if the 36% rise in Oracle stock after the company's AI-related backlog exploded to $455 billion at the end of June from $138 billion at the end of May is anything to go by.
Melius Research analyst Ben Reitzes contends that AI computing could reach $2 trillion by the end of the decade, driven by reasoning models such as ChatGPT, self-driving cars, and AI-trained robots. "We think there are signs that the AI compute/networking total addressable market is entering a hugeness that is hard to fathom," he writes.
Income investors need a solution better than chasing those gains. One isn't easy to come by, however. The Mag Seven yield a paltry 0.3% on average. Tesla and Amazon don't pay a dividend, while Nvidia, at 0.02%, has the lowest yield of any dividend payer in the S&P 500. Microsoft stock, with a 0.7% yield, is as good as it gets. That's well below the S&P 500, which yields about 1.2%, or the average payout from the 400-plus dividend payers, which is closer to 2.3%.
There are, however, six AI stocks that have solid dividend yields and dividend growth.
To create a universe of stocks to select from, we looked to those in three AI-themed exchange-traded funds -- Global X Artificial Intelligence & Technology, Roundhill Generative AI & Technology, and TCW Artificial Intelligence.
None of the ETFs yield all that much, but there are several stocks that Wall Street likes with attractive dividend characteristics. They include Accenture, which helps companies apply AI solutions; chip makers Qualcomm, NXP Semiconductors, Taiwan Semiconductor Manufacturing, Broadcom; and electrical infrastructure provider Eaton.
All six yield more than Microsoft. Their average yield is about 1.5%, and the six have grown dividends at about 11% a year for the past three years. They're also expected to grow earnings at about 16% a year and dividends at about 10% a year for the coming three years, according to Bloomberg. That's far better than the S&P 500, whose dividends have grown at a 6% annual clip over the past six years, while earnings have advanced at about 10% a year on average. (We started in 2019 to avoid pandemic comparisons.)
What's more, Wall Street likes the group -- the Buy-rating ratio for the six is about 75%, well above the 55% average for S&P 500 stocks -- and valuations look reasonable. The group grades for about 22 times 2026 earnings estimates, a premium to the S&P 500's 21 times multiple, but less than the 25 times multiple for the Mag Seven, excluding Tesla. (That stock is an outlier, trading for about 140 times estimated 2026 earnings.)
Whether AI is a boom or just a bubble remains to be seen. Either way, dividend investors can get in the game without sacrificing what they love -- nice income and growing payouts in stable companies.
Write to Al Root at allen.root@dowjones.com
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(END) Dow Jones Newswires
September 12, 2025 21:31 ET (01:31 GMT)
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