Broadcom (AVGO -0.49%) has made quite a name for itself in recent years as a key player in the semiconductor industry. Its stock has also been one of the hottest on the market — it’s up by more than 1,000% in the past five years.
Even with that recent success, shareholders still need to keep an eye on the company’s ongoing financial health. One number in particular that they should watch is its free cash flow, which was over $19.4 billion in its fiscal 2024.
Why should investors pay attention to Broadcom’s free cash flow?
The revenue metric generally gets a lot of attention from investors, but it’s important to pay attention to Broadcom’s free cash flow because that’s the money it has available to pay out dividends, buy back shares, make acquisitions to speed up growth, and reduce its debt level.
AVGO Free Cash Flow (Annual) data by YCharts.
A company can’t control its stock price, but it can ensure that it’s providing value to shareholders in other ways. In Broadcom’s case, it has increased annual dividend payouts for 14 consecutive years, spent tens of billions on stock buybacks over the past few years, and made a big-time acquisition with its $61 billion VMWare deal in November 2023.
Broadcom’s healthy free cash flow gives it the financial flexibility it needs to remain competitive in the semiconductor industry and reduce some of the debt it took on to swing the VMWare acquisition. It also gives shareholders a reason to stay patient through the inevitable ups and downs in the chip sector.
The semiconductor industry has seen unprecedented demand recently with the emergence of the AI trend, and if Broadcom continues to play its cards right, it should continue delivering strong results.
