The increasing demand for all things artificial intelligence (AI) is expected to add trillions in value to the economy, partly from the productivity gains it should create. Early investors in the companies that facilitated PC adoption 30 years ago, such as Microsoft and Intel, earned outstanding returns. AI offers similar return potential for investors who choose the right stocks.
While AI growth stocks are obvious options to consider, Investing in profitable AI companies that also pay dividends should also be considered, especially for investors with a long-term mindset.
Here are three dividend AI stocks that show real potential to earn excellent returns for long-term investors.
1. Nvidia
Nvidia(NASDAQ: NVDA) is benefiting from a massive shift by data centers to accelerated computing to handle AI training and inferencing. Last quarter, the company's revenue more than doubled over the year-ago quarter, driven by surging demand for its graphics processing units (GPUs), which are required for training AI models.
Nvidia should see more robust growth next year. It is preparing to launch its next-generation Blackwell computing platform, which takes processing power to a new level. Next-generation AI models will require 10 to 20 times more computing power, and Nvidia is ready to provide the hardware for the $1 trillion worth of data centers that will be needed to get it done.
Many investors may not realize that Nvidia has paid a regular dividend for over 10 years. They also may not be aware that it raised the quarterly payment by 150% this year. The quarterly dividend of $0.01 per share is admittedly not much, but it highlights the incredible growth in the company's profitability.
Nvidia generated a whopping $46 billion in trailing-12-month free cash flow, up fourfold year over year. The company's growth prospects and profitability should lead to substantial increases in the payout over the next 10 years, and that's on top of the additional share price appreciation potential for this stock.
2. Dell Technologies
Dell Technologies'(NYSE: DELL) recent share price dip is a good opportunity to get the stock at an above-average yield considering the outlook for a recovery in the PC market and demand for AI servers.
Dell's two main sources of revenue are client solutions, including PC sales, and infrastructure solutions, which include its fast-growing AI server business. The PC market has struggled this year from macroeconomic headwinds, but management is optimistic about a possible PC recovery in the near term, as Microsoft's Windows 10 reaches end-of-life and forces users to upgrade.
However, the opportunities in AI alone could send the stock higher. Dell has a major advantage in the AI server market, which is expected to grow tenfold over the next decade, according to Statista. Dell combines cutting-edge server technology with additional services, solidifying it as a leading supplier. The company posted a 38% year-over-year increase in its infrastructure solutions group last quarter.
Analysts expect Dell to grow earnings by 12% on an annualized basis over the next several years. This should lead to growing dividends. The company raised its quarterly dividend by 20% earlier this year and currently pays $0.445 per share.
The current dividend payment brings the forward yield to 1.68% -- higher than the S&P 500 average of 1.32%. The above-average yield and modest forward price-to-earnings (P/E) ratio of 13 suggest the stock is undervalued and a great buy ahead of more growth in the server market.
3. Meta Platforms
Facebook and Instagram owner Meta Platforms(NASDAQ: META) benefits from a highly profitable digital advertising business that is getting a major boost from AI technology. The social media leader initiated its first quarterly dividend in Q1, which speaks volumes about Meta's long-term prospects and management's confidence in the returns it is seeing on AI investments.
A debate is starting to brew about whether enterprises are getting a positive return on the billions being spent on AI infrastructure. Meta can answer that question with a big thumbs up. It has successfully integrated AI across Facebook and Instagram, which is improving content recommendations and benefiting the user experience. This has had a positive impact on driving higher advertising spending and revenue growth.
Meta reported a 22% year-over-year increase in revenue in Q2 -- double the growth rate in the year-ago quarter. Meta has been a major player in AI with the release of its Llama generation of large language models. It has been able to build this technology while paying a quarterly dividend to shareholders, which points to a prosperous road ahead for the company in the AI era.
Meta's current quarterly payment is $0.50 per share, which brings its forward yield to 0.4%. Investors should expect the company's double-digit growth to also increase the quarterly dividend at double-digit percentage rates in the coming years.
Analysts expect Meta's earnings to grow 18% per year in the years to come, so with its average forward P/E of 23, investors should expect excellent returns along with a growing dividend.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $730,103!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 9, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Ballard has positions in Meta Platforms and Nvidia. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
