Mega-cap stocks are defined as stocks with market capitalizations above $200 billion. As a result, there are certain advantages to buying mega-caps, such as the relative safety that comes with investing in the world’s largest businesses.

Mega-cap stocks tend to generate steady profits during recessions, and many pay dividends to shareholders. 

These 3 mega-cap stocks have growth potential over the long-term, and currently pay solid dividends to shareholders.

Mega-Cap Stock: Bank of America (BAC)

Bank of America is one of the largest financial institutions in the United States. Its operations include Consumer Banking, Wealth & Investment Management and Global Banking & Markets. Bank of America was founded in 1904, and should produce about $100 billion in revenue this year, making it one of the largest financial companies in the world on both measures.

Bank of America posted second quarter earnings on July 16th, 2024, and results were better than expected on both the top and bottom lines. Earnings-per-share came to 83 cents, which was three cents better than expected. Revenue was up only fractionally from the year before, but at $25.4 billion, was $200 million ahead of expectations. Provisions for credit losses were $1.5 billion, up from $1.1 billion a year ago, and $1.3 billion in the first quarter. 

Net interest income was $13.9 billion, down from $14.2 billion in Q1 and $14.3 billion in last year’s Q2. Noninterest income was $11.7 billion, down slightly from Q1 but up from $11 billion a year ago. Noninterest expense was $16.3 billion, up from $16 billion a year ago. Average deposits were $1.91 trillion, flat to Q1 and up fractionally from a year ago.

Bank of America remains highly focused on reducing spending where possible, and it has finally begun building its loan book. The company has almost one trillion dollars of deposits it has not lent out, and the bank is still lending cautiously despite relatively high interest rates. The bank has aggressively bought back shares in the past, which will help boost earnings-per-share.

Bank of America competes with the largest banks in the U.S. It has advantages of scale given its massive branch footprint, its digital presence, and its balance sheet that puts it among the largest banks in the world. With a 2024 dividend payout ratio expected at 30%, the dividend payout is secure.

Mega-Cap Stock: Johnson & Johnson (JNJ)

Johnson & Johnson is a diversified health care company and a leader in the area of innovative medicines and medical devices Johnson & Johnson was founded in 1886 and employs nearly 132,000 people around the world. The company is projected to generate more than $89 billion in revenue this year. 

JNJ has increased its dividend each year for the past 62 years, making it a Dividend King.

On May 31st, 2024, Johnson & Johnson completed its $13.1 billion purchase of cardiovascular medical device company Shockwave Medical. On July 17th, 2024, Johnson & Johnson announced second quarter results for the period ending June 30th, 2024. For the quarter, revenue grew 4.3% to $22.4 billion, which was $60 million more than expected. Adjusted earnings-per-share of $2.82 compared to $2.80 in the prior year and was $0.12 ahead of estimates. 

Excluding Covid-19 vaccine sales, the company’s revenue total grew 7.1% in the second quarter. Revenue for Innovative Medicines improved 5.5% on a reported basis, but was higher by 8.8% when excluding currency translation. Infectious Disease fell 13% excluding currency, mostly due to reduced Covid-19 vaccine revenue, though the year-over-year declines are becoming less pronounced. Oncology continues to act well, with revenue up almost 19% due to continued strength in Darzalex, which treats multiple myeloma.

Johnson & Johnson offered revised guidance for 2024. The company now expects revenue in a range of $89.2 billion to $89.6 billion, up from $88.7 billion to $89.1 billion previously. Adjusted earnings-per-share is now projected to be in a range of $10.00 to $10.10.

Johnson & Johnson has grown earnings over the past 10 years at a rate of 6.3%. The company managed to grow earnings before, during and after the last recession, showing that the company’s products are in demand regardless of market conditions. We expect earnings-per-share to grow at a rate of 6% per year through 2029 due to gains in revenue, acquisitions, and share repurchases.

Mega-Cap Stock: Broadcom Inc. (AVGO)

Broadcom designs, develops and sells semiconductors under the following business units: Wired infrastructure, wireless communication, enterprise storage and industrial. Its offerings include data center chips, factory automation, energy systems and power generation, broadband access, and home connectivity. AVGO has a market cap of $830 billion.

Broadcom reported its third quarter earnings results on September 5. The company generated revenues of $13.1 billion during the quarter, which represents an increase of 47% compared to the prior year’s quarter. The strong revenue growth performance was driven by AI data center investments by many of Broadcom’s customers as well as by M&A, primarily the VMWare takeover. 

The company outperformed revenue expectations easily. Broadcom reported earnings-per-share of $1.24 for the fiscal third quarter, which was ahead of the analyst consensus estimate. The company expects that revenues will come in at around $14 billion during the fourth quarter, which would represent a nice revenue increase on a sequential basis as well as on a year-over-year basis. 

Broadcom’s biggest market is wireless communication, where the company owns a strong connectivity portfolio that includes advanced LTE, Bluetooth 5.x, Wi-Fi, GNSS (GPS, Galileo, etc.), and so on. Broadcom is also well positioned in the enterprise storage market, where it provides switching and other connectivity solutions. 

Shareholders will naturally benefit from this growth, through rising dividends. Broadcom’s dividend payout ratio has risen considerably over the last couple of years, due to the large dividend increases that Broadcom has offered to its owners. Between 2010 and 2021, Broadcom increased its dividend by an incredible factor of more than 100. 

Broadcom’s dividend still looks relatively safe, as it is well-covered by both profits as well as by the cash flows that the company generates. Shares currently yield 1.2%.