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Many tech stocks have experienced a run-up in recent months thanks to AI. This has served as a boon to growth investors after the brutal sell-off in 2022. Nonetheless, that move may make investors forget that some AI stocks are also dividend stocks, and the technology could potentially reward income investors as well.

Investors looking for stable, growing income streams should take a closer look at these three stocks in particular.

IBM

Artificial intelligence is nothing new to International Business Machines (IBM -0.10%). The company’s Deep Blue defeated chess champion Garry Kasparov in 1997. Also, IBM Watson, its tool for processing natural language, competed against Jeopardy! contestants in 2011.

These AI-based applications have only become more critical now that IBM has reoriented itself around the hybrid cloud. With this move, IBM Watson can better manage core workflows for its clients, infusing AI for improved capabilities and efficiencies.

Such offerings also add to the appeal of the dividend. After 28 consecutive years of payout hikes, the current annual payout of $6.64 per share returns a dividend yield of 5.1%. And even though the dividend costs IBM approximately $6 billion per year, its estimated free cash flow of $10.5 billion for 2023 should cover the cost.

Furthermore, even with the cost, it could afford to pay $4.6 billion in cash for Apptio, a company that tracks data in hybrid environments. Since IBM has positioned itself to fund its payout, as well as its acquisitions and advancements in AI, it should continue to treat dividend investors well.

HP 

As a manufacturer of commoditized products like PCs and printers, HP (HPQ 0.69%) may not seem to offer much to the AI industry. Moreover, it spun off much of its AI capacity in its separation from Hewlett Packard Enterprise in 2015.

Still, AI continues to play a critical role in HP. CEO Enrique Lores told CNBC recently that he expects AI to spark innovation within the PC industry, dramatically reducing the time needed to build spreadsheets and analyze data. To that end, it now works with key software vendors and silicon providers to redesign the architecture of PCs.

This should help fund the yearly dividend of $1.05 per year, which yields 3.5%. The payout has risen annually since before the 2015 spin-off, and lackluster financials have not undermined the dividend. In the fiscal second quarter (ended April 30), its free cash flow of $506 million financed $259 million in dividend costs.

Furthermore, HP covered these costs despite Q2 revenue of $27 billion, which fell 22% from last year’s levels amid sluggish PC sales. Assuming Lores’s prediction of an AI-driven recovery in the PC market comes to pass, it can not only revive growth but also bolster its income investors with a generous and growing payout.

Texas Instruments

Given the more than 80,000 products developed by Texas Instruments (TI) (TXN 1.32%), it should come as little surprise that it applies AI to some of them.

A key offering in this space is TI’s edge AI cloud. This software-development model allows users to compile and apply deep learning tools to applications. This enhances the company’s smart-camera technology, which can manage up to 12 cameras simultaneously for retail or industrial applications.

Moreover, TI became a fast-growing dividend stock under former CEO Rich Templeton’s leadership. Between 2004 and 2022, dividends grew at a 25% compound annual growth rate.

Consequently, the current annual dividend of $4.96 per share yields about 2.9% at current prices. In Q1 2023, TI generated $4.4 billion in free cash flow over the previous year, just above the $4.36 billion in dividend costs.

Still, investors need to remember that the chip industry operates in cycles. The lower free cash flow occurred at a time when a slump in the chip industry reduced free cash flow by 32% from year-ago levels.

Also, TI holds nearly $10 billion in liquidity, and other AI-oriented chip stocks foresee a significant recovery in chip sales later this year. For these reasons, TI appears well positioned to continue payouts and fund increases in future years as AI helps to boost its chip business.

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