ASML (NASDAQ: ASML) is possibly the most popular dividend stock in the world right now. According to StockAnalysis, it is second only to the mighty NVIDIA (NASDAQ: NVDA) in social media mentions this week. Technically NVIDIA itself is a dividend stock, but its 0.03% yield might as well be nothing. ASML is currently topping the charts among dividend stocks that have an appreciable amount of yield (in this case 1%).
ASML is a Dutch Semiconductor equipment manufacturing company that builds lithography equipment. Its best-known machines are extreme ultraviolet (EUV) machines that can make extremely small and high-powered computer chips. They are used to build high-performance chips such as NVIDIA GPUs and others.
On the day I wrote this article, ASML stock was going crazy in the markets, rising 5% in a few short hours. It was a vote of confidence in the company, which had released its earnings a day prior and beat all relevant expectations.
Investors clearly love ASML, which is a monopoly and a very fast-growing company. Personally, though, I prefer cheaper dividend stocks. Semiconductor companies have become extremely richly valued recently thanks to their role in running generative artificial intelligence (AI) applications. In the ensuing paragraphs, I will share one dividend stock I like better than ASML at today’s prices.
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Royal Bank of Canada
Royal Bank of Canada (TSX: RY) is Canada’s biggest bank by market cap. While it may not be the leading-edge innovator that ASML is, it is something of an AI stock itself, as it uses AI extensively to streamline its operations. The company has ranked in the top three global financial institutions for AI three years running, having embraced AI applications such as digital identity verification and form filing.
Moderately high yield
One thing Royal Bank of Canada has that ASML doesn’t is a moderately high yield. RY pays a dividend of $1.48 per quarter, which works out to $5.92 per year. At today’s $176.58 stock price, the yield is therefore 3.4%. That’s actually on the lower end for TSX banks in recent years; RY has solidly outperformed its peer group, resulting in its dividend yield going lower than those of the other Big Six banks. However, its yield is still higher than that of the TSX Index as a whole, making it a ‘high yield name’ in some sense of the word.
Low payout ratio
While Royal Bank of Canada stock has a fairly high yield, it is not paying out an excessive percentage of its profits as dividends. In the trailing 12-month period, the bank did $11.30 in earnings while paying out $5.70 in dividends, giving it a 50.4% payout ratio. That is fairly low by the standards of dividend stocks generally, and even by the standards of TSX banks, which usually have lower payout ratios than extremely dividend-heavy sectors like REITs and pipelines.
A sensible valuation
Despite all the gains it made in the last 12 months, RY stock has a fairly sensible valuation. At Wednesday’s mid-day price ($176.58), it traded at the following multiples:
- 14.6 times adjusted earnings.
- 15.7 times reported earnings.
- 4 times sales.
- 2.1 times book value.
These multiples are lower than those that the TSX index trades at, despite the fact that RY achieved high revenue and earnings growth in the trailing 12-month (TTM) period.
Foolish takeaway
While ASML and Royal Bank might seem like apples and oranges, they are similar enough to merit a comparison. For my money, RY is the better dividend stock among these two due to its cheapness.
