Machine learning. AI. Automation. The future is upon us.
From smartphones to robotic production lines to drones, human life and machine life are becoming more intertwined and dependent on one another.
One of the biggest coming changes is AI and its impact on how we work, play, learn, shop, and communicate.
Change is always a bit scary. But it can also be incredibly exciting. And profitable.
Indeed, there are a number of companies who are investing in AI because they can foresee the profits to come. And investors can gain exposure to AI by buying shares in these companies.
Investing in the fringes of technology directly, as an individual, is very risky. A lower-risk way to play this is to invest in high-quality dividend growth stocks with AI exposure.
Mixing dividend growth investing AI? It’s old school meets new cool – the best of both worlds. These have been great investments for decades before AI. AI gives us that much more of a reason to invest.
Today, I want to tell you about three AI stocks paying safe, growing dividends. These are great businesses that already have lengthy track records of reliable, rising profits and dividends. But they’re bolstering their investment appeal with the AI exposure.
Ready? Let’s dig in.
AI Dividend Stock #1: Apple (AAPL)
The first stock I want to tell you about is Apple (AAPL). I’ve repeatedly called Apple a must-own stock for serious dividend growth investors, and its AI exposure is but one of many reasons for that.
Ever heard of Siri, the tech company’s AI-based voice assistant? That’s the consumer-facing, easy-to-understand version of AI. But Apple can, and will, go much bigger and deeper than this. Through in-house development and bolt-on acquisitions, Apple is slowly paving the way toward a future where things like AI, AR, and VR are as commonplace as smartphones are now. They recently committed to $430 billion in US investments over the next five years, and they specifically mentioned AI as one of their key areas of focus.
Apple is a no-brainer long-term investment for both AI and growing dividends.
Apple has already increased its dividend for 10 consecutive years, with a five-year dividend growth rate of 9.7%. With the company’s net income in excess of $70 billion over the last 12 months, and the dividend only costing them about about $15 billion/year, Apple is practically a lock for increasing dividends over the coming decades. And that’s on top of continued investment in AI.
The crazy thing is that the stock isn’t outrageously valued.
Despite Apple’s position as the #1 company in the world by market cap, the valuation isn’t totally out of line. The P/E ratio is slightly below 30. That’s on a world-class enterprise in a low-rate environment. If you want to sleep well at night while you collect safe, growing passive dividends and also be invested in AI, Apple is one of my best long-term ideas.
AI Dividend Stock #2: Emerson Electric (EMR)
Stock #2 is Emerson Electric (EMR). Emerson Electric is the perfect example of old school meets new cool.
This old-school manufacturing and engineering company is a Dividend Aristocrat with 64 consecutive years of dividend increases, which is one of the longest such dividend growth streaks in the whole world. And it’s even a pretty decent income play here, with a yield of 2.1%. Their 10-year dividend growth rate of 4% won’t knock you dead, but there could be a growth acceleration in store for shareholders from new-cool investments.
The company has been heavily investing in areas like machine learning and automation.
And those investments have been panning out. Free cash flow for the most recent quarter was up 48%. EPS increased by 11% YOY. This Dividend Aristocrat has recently found new life by adapting to exciting new changes around automated manufacturing, incorporating data analytics and machine learning into the improvement of processes.
The market clearly likes what it sees.
This stock is up more than 70% over the last year, far outpacing the market. It’s no longer an undervalued, under-the-radar way to play the future of manufacturing. However, the P/CF ratio of 15.5 is right in line with its five-year average. If there’s a dip in this name, put it on your list.
AI Dividend Stock #3: United Parcel Service (UPS)
The third stock I want to highlight is United Parcel Service (UPS). This is a multifaceted way to invest in the future of society, and AI is one of those facets.
The shipping company is a classic dividend growth stock. With a market-beating 1.9% yield, 12 consecutive years of dividend raises, and a 10-year dividend growth rate of 7.9%, it checks a lot of boxes. Plus, you get an easy-to-understand business with a ubiquitous service that gives investors tangibility. You can see the brown trucks everywhere you go. But what you might not readily see is all of their AI investments.
UPS uses AI across the business to help them be more efficient and serve customers better.
They have their chatbot to help customers find lost packages. They have ORION, which uses big data analytics and AI to help them solve logistics problems and deliver packages more efficiently. And now they’re testing drones, which will surely incorporate AI into a fully-automated suite of delivery services.
UPS offers investors a sleep-well-at-night way to invest in the fringes of tech and society.
The P/E ratio is elevated, but UPS routinely reports volatile GAAP earnings. Meantime, the P/CF ratio of 15.3 is actually below its five-year average of 15.7. If you’d like a piece of that future AI drone delivery action, keep an eye on UPS for your dividend growth stock portfolio.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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