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Billy Duberstein, The Motley Fool
Mon, Mar 17, 2025, 1:20 AM 5 min read
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When you’re young, your investment goals revolve around growth. In retirement, those goals change to income. But if you are, say, a decade or two from retirement, your priorities are balanced between the two.
Thus, the decades leading up to retirement is a great time to buy dividend growth stocks. If a company is profitable and has a path to a decade or more of growth ahead, the compounded dividend payouts can become quite large once you hit retirement age.
The catch is that dividend growth stocks often have current yields that don’t exactly wow investors. However, the recent pullback in the market has increased some companies’ yields significantly, merely by virtue of their stocks going down. That makes the following company look like an ultimate retirement stock for Gen X and millennial investors today.
Semiconductor stocks have been long-term winners in the stock market, though investors have to be selective. Chip designers’ fortunes can change drastically if and when there’s a big technology shift and competition emerges. Meanwhile, chip manufacturing can be quite capital-intensive, limiting the amount those companies can return to shareholders.
But semiconductor equipment stocks — the companies that make machines that manufacture chips — have less risk than chip designers and lower capital intensity than foundries. “Semicap” equipment providers usually grow along with the semiconductor industry, which should be well above GDP over the long term. Meanwhile, this sub-sector is also highly concentrated to just a few big players with high margins and cash flows.
Applied Materials (NASDAQ: AMAT) is the most diversified of the equipment suppliers, and just announced a big dividend hike and share repurchase program. Yet the stock is also down some 40% from its highs last summer, and its current dividend yield has risen above 1%. With years of AI-fueled growth ahead of it, the stock is making a good case for dividend growth investors to scoop up shares today.
Last Monday, Applied announced it would increase its quarterly dividend from $0.40 to $0.46 per share, an increase of 15%, which will be made on June 12 to shareholders of record as of May 22. In addition, Applied’s board of directors approved a new $10 billion repurchase program, in addition to the $7.6 billion remaining on its already-existing program.
That’s a big hike in shareholder payouts, even though management’s enthusiasm is at odds with the current market sentiment. In fact, Applied’s stock is down about 40% from its July 2024 highs. That’s a pretty severe decline, especially since Applied is still reporting consistently good numbers. Last quarter, the company grew revenue 7% and adjusted (non-GAAP) earnings per share by 12%. And analysts project nearly 10% earnings growth over each of the next two years.
