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Long Term Investors Of Broadcom (NASDAQ:AVGO) Are Happy With Their 248% Total Return

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·3-min read
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This article was originally published to Simply Wall St News.

The total stock return is important for dividend paying companies such as Broadcom Inc. ( NASDAQ:AVGO ), because a large portion of the returns to shareholders come from dividends. Broadcom has a history of continuous dividend payments to shareholders going back ten years. The company has successfully increased its dividend payments over time and is still committed to providing a good payout for shareholders.

Long term Broadcom shareholders would be well aware of this, since the stock price alone is up 200% in five years.

See our latest analysis for Broadcom

One imperfect but simple way to consider how the market perception of a company has shifted, is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Broadcom achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is lower than the 24% average annual increase in the share price. This suggests that investors are optimistic on the company’s future.

This optimism is visible in its fairly high P/E ratio of 41.2.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

NasdaqGS:AVGO Earnings Per Share Growth June 2021

Future earnings will be far more important to whether current shareholders make money. This free interactive report on Broadcom's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs.

It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend.

In the case of Broadcom, it has a TSR of 248% for the last 5 years. That exceeds its 200% share price return. This is largely a result of its dividend payments!

Summing It Up

Considering the high total stock return, it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper.

Alternatively, such a high return may mean that the stock is a bit ahead of its growth capacity at the moment.

A good starting point when thinking “ where will future growth come from? ”, can be found in the long term prospects of the company such as the projected growth in semiconductor demand and the expanded need of cloud services that rely on semiconductor infrastructure providers.

This gives shareholders a good basis when looking at Broadcom on the long term, as it is positioned in an expanding industry with dividend backed returns.

While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 4 warning signs for Broadcom you should be aware of, and 1 of them doesn't sit too well with us.

If you like following what management does, instead of what they say, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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