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one of my favorite dividend stocks has been absolutely on fire lately and that is broadcom stock ticker avgo the company is currently trading at 812.73 per share and over the past year they're up over 47 if we look year to date we can see they're up about 46.8 percent and over the past month alone up over 31.5 now some of the reasons they're up is because of the recent news they have a deal with Apple if we scroll down you can see apple has reached a multi-billion dollar deal with broadcom for us-made components helping fulfill an apple commitment to put 430 billion into the US economy over five years now this was announced about a week ago and again like I said over the past month of about 31.5 percent but the success I've seen over the past year is really nothing new if we look at the past 10 years you can see they're up over 2 000 so this is one of the best performing stocks in the S P 500 over the past year now if we dig into the dividend stats a little bit we can see the current dividend yield for this company sitting at 2.26 that's actually quite a bit lower than their typical starting dividend yields we jump over to dividends and click on dividend yield we can see the four-year average dividend yield for this company sitting at about 3.22 so typically the starting dividend yield for this company has been 3.2 or a little bit higher but that huge jump up in share price over the past few weeks has lowered the starting dividend yield but anytime you look at dividend yield you also need to understand the company's dividend growth so let's scroll down and look at that dividend yield on cost now dividend yield on cost is a metric that if you are a dividend growth investor that is extremely important and everyone needs to understand so if you can see again if you invested in the company right now your dividend yield on cost would be about 2.26 percent but if you invested around three years ago you can see your dividend yield on costs would be above six percent let's go ahead and scroll out a little bit more and look at this a little bit deeper if you invested around eight years ago your dividend yield on cost around 15 and this is where it gets really ridiculous and I've talked about this on the channel before if you invested in broadcom about 10 years ago your dividend yield on cost would be over 54 percent that's like making a one-time 1 000 investment and getting paid over five hundred and forty dollars every single year and keep in mind that doesn't even include when you do reinvest your dividend so if we look at that dividend growth tab you're going to see some unbelievable dividend growth you have a three-year dividend kegger of around 13.8 percent five year of twenty five point seven percent and a tenure of 38.5 so again if we visualize that in a chart look at the history of these dividend payout increases it's been absolutely massive they're paying out around 19 per share quarterly in 2013.
Jump forward now that is now four dollars and sixty cents so absolutely unbelievable dividend growth from this company absolutely unbelievable share price appreciation but is it a good value at its current trading now complete transparency as always this is a company that I'm super happy that I own in my personal dividend portfolio you can see it's actually one of my best performing positions I'm up around 57.4 on this position so again very happy that I added it I only wish that I added more when I originally purchased this company but again we want to see if it's trading at a good value you add its current trading prices so let's go ahead and run through my stock valuation spreadsheet look at a few different valuations and like always if you'd like people to download the spreadsheet and you can head over to my patreon page at the link in the description let's go ahead and come up here and plug in the stock ticker avgo and hit enter and you can see all this data is going to automatically load in now the current starting dividend yield sitting around 2.26 like I already mentioned with a payout ratio of around 55.2 percent so not necessarily a high payout ratio but a little bit higher than I typically like to see it not really too much of a concern for Me overall and I'll show you why a little bit later now analysts currently have a Target price of around 701 dollars per share a little bit below that current trading price actually institutional ownership is sitting at around 80.7 percent and the beta sitting at about 1.09 so you'll see slightly more volatility than that of the market let's go ahead and jump into our first evaluation and that's going to be Graham's valuation this is a valuation model invented by Warren Buffett's Mentor Benjamin Graham to calculate intrinsic value and essentially it's going to use the earnings of a company look at growth rate projections for them and divide by the current yield on Triple A corporate bonds to come to the valuation so you can see we have our earnings per share listed here we have our growth rate projection which analysts still have very high growth rate projections for avgo and then we multiply it by 4.4 which is the average yield on Triple A corporate bonds divide by y current yield on Triple A corporate bonds and at the time of this video that is sitting pretty high at about 4.6 which will drive down this valuation a little bit when we plug all this in you can see we come to an intrinsic value of 654.28 cents per share now the earnings per share we're using this situation is the trailing 12 months it might make more sense to actually use the forward-looking earnings per share which is actually around 41.29 so if we go back over to our valuation spreadsheet plug in 41.29 and hit enter you can see our valuation jumps all the way up to 908 dollars per share a very strong valuation let's go ahead and move forward and look at our discounted cash flow analysis and basically what I've done is I plugged in the historical free cash flow for the company so we can see our year over year free cash flow growth rates they have had positive free cash flow growth for the past 10 years extremely impressive not very often you see that consistent free cash flow growth the average growth rate absolutely unbelievable at around 51.5 percent moving forward I'm projecting a growth rate of around 11.5 for the future free cash flows of the company and the terminal value which is the sum of the future free cash flow past year 2030 after finding the present value of those future free cash flows and adding them together adding the company's cash and cash equivalent subtracting their total debt would get their Equity value after the equity value we divide by shares outstanding and we come to a discounted cash flow price per share of 910 again pretty close to Graham's valuation and a little bit higher than that current trading price now the next valuation we will look at is the multiples valuation and this is a really interesting valuation model because it's going to Value the company based on how the market is buying companies that are similar in structure so you can see our comparable companies we have Qualcomm we have Texas Instruments and nxpi now Texas Instruments is actually another company that I own in my personal dividend portfolio and I've seen pretty good returns from you can see for the most part the price to earnings multiple for these companies is sitting at around 19 to 18 the average price to earnings 18.9 so pretty close to 19 for the companies now if we jump back over to our stock screener we can see the price to earnings for avgo sitting at 27.33 but again you have to keep in mind that's using the trailing 12 months earnings with the forward-looking earnings their price to earnings would be closer to around 19 like these comparable companies but we are going to stick with the trailing 12 months in the scenario with it it gives us an intrinsic value of around 564 dollars but if we did stick to that earnings per share of around 41 and hit enter you can see it jumps up pretty close to that current trading price let's go ahead and bump it back to the trailing 12 months for this scenario but let's look at our last valuation the dividend discount model this is basically a way to value a company based on how much they pay out in dividends and how much that dividend is increasing over time so I plugged in the quarterly dividend payouts over the past four or five years so we can see our yearly dividend payouts from the company and our dividend growth rates of 22.6 10.7 14 and 12.2 that's an average growth rate of almost 15 percent over the past few years so moving forward I'm staying pretty close to in line with analyst expectations of a 6.75 dividend growth rate discount rate of around nine and that gives us a dividend discount model price per share of 873 dollars so when we jump over to our output tab we can see our four valuations we have grams multiples discounted cash flow and dividend discount model and we average all four of these together we come to an intrinsic value of eight hundred and fourteen dollars and twelve cents which is pretty much right at the current trading price for this company so it looks like it's pretty close to fair value with a 10 margin of safety you can see our acceptable Buy price sitting at around 732 dollars per share and with a 20 margin of safety you can see our acceptable by Price sitting at around six hundred and fifty one dollars per share and again you could argue that the multiple valuation that we should be looking at the forward earnings for avgo but keep in mind if you do that you want to look at the forward price to earnings multiple for all these other companies as well but for me I'm pretty happy that I was researching this company back when it was around around 520 dollars per share let's look at the past year so I was able to buy in somewhere around this price point right here and we have seen a great run up since then and this actually brings about another really important point this is something that Peter Lynch has talked about in the past quite a bit just because a stock has gone up a ton in its share price doesn't mean it's overvalued and just because the stock has come down a lot and its share price doesn't mean it's undervalued I bought this stock after it had seen a huge run up over the past decade but after I dug into the numbers and looked at the company a little bit more I still felt like it was undervalued and I've definitely seen the benefits of that decision as I am up over 56 percent on this position so there you go there's a quick analysis on broadcom one of my absolute favorite dividend stocks go ahead let me know if you own this company in the comments down below if you plan on buying or selling if you'd like to be able to download this spreadsheet and you can head over to my patreon page at the link in the description so that being said thank you guys so much for watching and please don't forget to like And subscribe to the channel
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