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Broadcom: Back To The Future

Mar. 10, 2020 11:11 AM ETBroadcom Inc. (AVGO) Stock, AVGOP Stock21 Comments
The European View profile picture
The European View


  • Crises and global stock price crashes are painful experiences for many investors, as the accumulated book profits disappear in a very short time.
  • But I think that a window of opportunity has opened up for Broadcom investors.
  • So, if you have been frustrated in the meantime about not having invested in Broadcom before, now is a good time to make up for this mistake.
  • Today, the investment is worth even more despite the same price, because Broadcom is even more profitable, generates even more cash, and pays an even higher dividend.


Broadcom (NASDAQ:AVGO) is currently a buy for certain investors. This requires acceptance of the existing uncertainties, a lack of risk aversion, and a long-term investment horizon. In return, investors are rewarded with an absolute market leader that is involved in promising megamarkets. A high dividend yield with further increases rounds off the overall picture. I hold Broadcom in my widely diversified bond portfolio. I will be increasing my holdings over the next few days. In this article, I will go into the individual aspects and explain my decision in more detail.

Corona-based time travel investing

The markets are falling worldwide. The majority of investors are, therefore, mainly thinking about selling rather than buying. With the associated price losses, the situation arises that companies fall back to past values. Investors who buy companies in such a phase, therefore, pay the same value as another investor in a previous period. In the following, you can see what I mean when you look at Broadcom share price development:

So, whoever buys Broadcom now will pay the same price as investors in 2017 (and then again in 2018). So, if you have been frustrated in the meantime about not having invested in Broadcom before, now is a good time to make up for this mistake. In this form, investing is a bit like time travel, and that is what is interesting about stock market crashes or major corrections. They open windows for investors to travel back in time and put their portfolio in the way it would be now if they had made an investment decision in the past instead of today. Having said that, there are, of course, a few things to consider, which I would like to go into in more detail below.

The right mindset is decisive

The approach

This article was written by

The European View profile picture
Runner of the TEV Blog | Private InvestorI am a long-term oriented investor and in my early thirties. I hold a law degree and a doctorate in law and love investing and talking about my and others' investments. I regularly write about my research and investments on various investor platforms and the TEV Blog. **My articles represent my opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions.**

Analyst’s Disclosure: I am/we are long AVGO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (21)

Brad Thomas' article and the comments thereof are well worth a read, as this article is a little thin. BT argues that Free Cash Flow is what matters for assessing divided and the divd/FCF is (was) 58%.

The problem I have with these two articles, (no fault to the authors) is that they lie in the far rear view mirror, now that Covid-19 and the pandemic panic, with the shut down of our economy, has taken hold. This means all engines are turned of...sort of like the "Day the Earth Stood Still" but that was only a half hour long (I refer to the great 1951 film), this will be month(s). This will be extremely disruptive. Even a small localized asteroid impact, one that leveled a city like Dallas, would be less disruptive.

So, any company with enormous, expensive debt (due to quantity and a mediocre debt rating) has a major FCF problem at a time like this.

The dividend is threatened. I even detected some reference to the dividend being under consideration in the last cc should other CF mitigation be insufficient. The company will argue that the damage to pps has been done by the Covid-19 virus panic, nothing we can do about it, so we'll normalize our dividend back to 5%...that's not a shaved head, but it is a big haircut.

So many proclamations are heard that the time to buy has arrived.. because there is "blood in the streets," "now is the time to buy low," and the Buffett mantra is recited like a war-cry.. But, given the mess we are in now with Covid-19, and a large part the problem is the leadership catastrophe in DC, I am inclined to view these calls to "buy buy buy" as reverse barometers.
I would not try to scheme the bottom price here and hold fast to cash. I would wait until some form of normalcy returns, imminent vaccine and workable therapies, people heading back to work, etc., before pouncing on this one...and I would use care going forward, until the tumor in Washington is removed, as well.
Preferred is at 12% now?
Flex68 profile picture
Common is at 7.74% now?
Cambridge STR profile picture
So, 22% of their revenue is paid out as dividends? Someone check my math please.
nomobailouts profile picture
This seems to contradict itself:

"It is also to be expected that Broadcom will increase its dividend considerably in the coming years, although I do not expect it to remain as high as it has been in recent years"

Can you clarify the intended meaning please ?

The European View profile picture
There will be increases but the increases will probably be not as high as they were before.
Agreed. I sold the 185 puts for March 20th for a couple bucks. Crazy
AVGO has tons of debt at one notch above non investment grade junk.bonds, a risky bet under conditions of COVID and clouded economic outlook.
Flex68 profile picture
@hksche2000 ,

AVGO's LT debt-to-equity is certainly not as attractive as it was a year, or so, ago.

But acquiring debt in a healthy market, with low interest rates, is often more advantageous to large and well-established companies than some of the other options available to establish equity/reduce debt.

This might be deemed to be especially true in large companies who may put more emphasis on M&A, and/or who appreciate tax deductions in such a low-rent environment.

Oh, granted, I still am not sure that AVGO's recent purchase of Symantec will be all they profess, in terms of synergy.

But shame on them for having been aggressive in financing prospective growth/synergy with debt during the good times, I guess, when they could have simply asked you to address your crystal ball regarding "COVID and [the current] clouded economic outlook…."

P.S. With their earnings history and level of FCF, I think they'll be fine. Hell, forward-thinking investors might even believe that--- should COVID-19 be a weeks- to months-long issue--- that AVGO is currently (and unfairly) undervalued...................
Steelhead15 profile picture
@The European View I like your articles. Very complete and balanced.
Preferred went to Par value yesterday. Picked up some more shares @ 8% yield wit a chance to obtain bargain shares in a couple of years when it is above 330.
Ditto. Bought some luckily at $992
Finici profile picture
Absolutely - I was able to avg down to just above par. While the common is now pegged at 5%+, the pfd is a good lt play. I am sure that some of the downside is due to xDiv date. 7.5% is a terrible thing to waste.

yardbird99 profile picture
That would be a good name for a science fiction movie.
Agree with the author's conclusion. Picked up some more AVGO during the devastation yesterday.

Retired dividend-growth investor
4% yield is not bad. Moreover, the stock has good option action. I bought it at $290. Would have bought more at the current price (about $250).
Yea u might wanna recheck that it’s 200 now
$234 now.
QuentinZ profile picture
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