Goodbye NVIDIA, hello Broadcom

March toward $1,000,000: Week 6 (Sept. 3-7)

week6

With all of last week’s major changes – shifts in brokerage and strategy – still marinating in my mind, I entered this past week (Sept. 3-7) feeling pretty good about my march … and where it’s going.

I found myself caught up on one stock, though: NVIDIA. While the share price has stalled a bit lately, up just 63% in the past 12 months (haha, just 63%), it’s been a beast of a stock for the last five years or so. Any guesses as to how much it’s up in that period? Give up? OK, I’ll tell ya … try 1,742%.

I think most people would agree that’s some pretty decent growth.

Oh, and it also pays a dividend – a dividend which has been growing at an average rate of 18.30% over the course of the last three years. The company has increased its payout for five straight years, which is one reason I thought it would make a good foundational stock.

There’s certainly a lot to like with NVIDIA (NVDA), but, like I said, there are also a few things I couldn’t look past. For starters, the dividend, despite the growth I just touched on, is still just $0.60 a share. For a stock that costs nearly $300, that’s a yield of just 0.22%. That, my friends, just isn’t enough to get me excited.

That said, I decided to drop NVIDIA and add Broadcom (AVGO) instead.

Broadcom > NVIDIA

So, I’m going to keep this short and sweet. Broadcom and NVIDIA are both in the IT (Information Technology) sector and semiconductor and semiconductor equipment industry. But, that’s where the similarities, at least in terms of the stocks, end.

NVIDIA is super expensive (56.40 price-to-earnings ratio and 21.75 price-to-book ratio). It’s trading near the top of its 52-week range and, like I mentioned above, has a pathetic dividend yield.

Broadcom, on the other hand, is trading closer to its 52-week low than high, and is a much, much better value (price-to-earnings ratio of 12.88 and price-to-book ratio of 3.72). Not only that, it also pays a dividend of $7 a share, which equates to a 3.01% yield. Now, I should probably mention this is the first year the company has paid a dividend, so the track record isn’t there, but I like the starting point. Couple the already-solid dividend with the fact the company has a payout ratio of just 25.91% and lowish debt-to-captial ratio of 39.07% and it, in my opinion, has some serious potential as DGI stock.

That’s essentially why I made the switch. It’ll be fun to see how it all shakes out in the end.

Think it was a good decision? Think I shoulda stayed with NVIDIA? Think they both suck? Let me know.

In the meantime, march on!

2 Responses to “Goodbye NVIDIA, hello Broadcom

  • I’ve been following your blog for quite a while now. Love the URL/title! It’s very inspiring.

    Anyways, I copied your investment portfolio 1 for 1 about 3 months ago and have had mixed results with that portfolio. I’ve been getting frequent dividend payouts, which are still pretty low, but I have not done the math yet on how much exactly.
    At the same time, I invested in a few other stocks of my own liking, and maybe I just picked well, but they have been performing really well as of late.
    There was some minor overlap with what you had in your existing portfolio.

    It’s too short of a timeframe obviously, but I guess my question is, why are you favoring dividend investing over value investing? Especially with your latest moves, you are favoring dividends from a small number of companies, which increases the risk to you even further if one of them struggles and loses significantly in value, then your march towards a million will be brought to a halt.

    Do you have any thoughts on dividend vs value investing?

    • First of all, thanks a ton for following along. It really means a lot. As for the question about value vs. dividend investing, the goal would be to do a little of both all at the same time. It’s possible to get good DGI stocks at solid valuations, but that’s not where I’m at in my portfolio build. Right now, I just want to get the stocks I want to hold for the next 20-30 years, no matter what they cost. I’m not concerned with price right now. If I wait for Microsoft to drop, for example, I may be waiting a long, long time. I will slip into more of a value mindset once I have my foundational stocks in place.
      Also, it’s funny you mentioned the small number of companies I said I’d invest in because, well, I changed my mind a bit because of the exact reason you mentioned. I have 19 positions now, with a goal of 30 or so by the end of next month.
      March on!

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