One downside to investing in growth stocks is that they typically pay little or no dividends. The idea is to reinvest capital in the company to increase its value, rather than providing investors with the temporary benefit of a dividend payment. However, there is a limit to how much reinvestment is necessary before it borders on wasteful. For this reason, many growth companies take a more balanced approach to their capital return programs.

Microsoft (MSFT 0.69%), Broadcom (AVGO 0.98%)And visa (V 0.39%) are good examples of former emerging growth companies that have matured and no longer need to pour every penny of excess profit back into their business. Despite their low yields, all three companies rely heavily on their dividends. Here’s why they’re all a buy now.

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Microsoft’s rising dividend is one of many reasons to buy the stock

Microsoft has consistently increased its dividend. Annual dividend increases are typically around 10%, and over the past 10 years the dividend has almost tripled. Microsoft’s annual dividend expenditure is now over $21 billion – but the company can easily afford it.

Microsoft’s payout ratio is just 25%. That means that for every dollar of earnings per share (EPS), about $0.25 goes to dividends per share. That’s an affordable expense, especially for a company like Microsoft that has an extremely healthy balance sheet with more cash, cash equivalents, and marketable securities than debt.

Share buybacks have also been a central aspect of Microsoft’s capital return program. Despite rising stock-based compensation costs, the company has reduced its outstanding share count by 10% over the past decade thanks to buybacks. Last year, however, saw a significant shift in Microsoft’s capital return strategy.

Microsoft is scaling back its share buybacks to accelerate capital spending, while the company is increasing spending on product improvements and investments in artificial intelligence (AI). In the chart below, you can see that share buybacks are down about 50% from a few years ago, while capital spending has skyrocketed.

MSFT Capital Expenditure (TTM) data by YCharts

The beauty of Microsoft’s capital allocation strategy is that the company can use buybacks as leverage when it needs more money to invest in growth, or it can slow growth when there is no compelling opportunity. And yet the company can still buy back enough shares to more than offset stock-based compensation – thus avoiding dilution.

The key point here is that Microsoft is so profitable that it can afford a massive and steadily growing dividend while investing in growth. With a price-to-earnings (P/E) ratio of 33.8, Microsoft isn’t a particularly expensive stock either – especially compared to some of its megacap growth competitors.

Broadcom is so much more than just an AI company

Broadcom’s dividend has increased fivefold in just seven years. The company has proven to be arguably the highest-dividend semiconductor stock, as it passes its profits directly to shareholders. But that doesn’t mean Broadcom is taking its foot off the gas when it comes to growth.

Broadcom makes a variety of hardware components for storage and systems, wireless and wired connectivity, mainframe and enterprise software, cybersecurity, and more. The company is benefiting from increased investment in global connectivity and the need for more computing power to support AI models. In this respect, Broadcom is not a pure play AI stock. It was doing well before the recent surge in AI investment. However, Broadcom’s AI chip sales are rising rapidly, which could lead to AI making up a larger portion of its revenue mix in the future.

In addition to its balanced business and increasing dividend, Broadcom is also not overpriced – with a P/E ratio of 28.7. Broadcom yields 1.5%, which may not sound like much, but is actually higher than the S&P500The yield is 1.3%. Moreover, Broadcom’s low yield is due to its above-average share price rather than a lack of dividend increases. Broadcom has gained almost three times over the past three years. Without this gain, the yield would be over 4%.

All in all, Broadcom is a great way to invest in AI without paying for a stock with a horrendous valuation.

Visa can win regardless of the economic situation

Visa is another great example of a company that has evolved to a balance of growth, income, and value. Visa has increased its dividend for 16 years in a row—over the last decade, the dividend has grown 420%. Despite the rapid increases, Visa’s yield is only 0.8%—again, largely due to an above-average share price.

But as impressive as Visa’s dividend increases have been, they are far from the only way the company returns capital to shareholders. Visa has reduced its outstanding share count by 21% over the past decade. The chart below shows several reasons why Visa has been such a profitable investment during that time period – with shares up nearly 400% and a growing capital return program.

V-data from YCharts

While Visa’s track record is hard to dispute, investors are more interested in where a company is headed than where it has been in the past. And fortunately for Visa investors, the company’s position appears stronger than ever.

Visa charges merchants fees when Visa credit and debit cards are used for a transaction. Although Visa benefits from higher spending, it is not a cyclical stock in the sense of a company that is highly dependent on the economic cycle and capital investments.

It’s also worth noting that Visa is extremely resistant to inflation – and if anything, benefits from it, because inflation means higher nominal spending. And it’s unlikely that Visa’s costs would rise by the same rate.

But Visa also benefits from lower interest rates, which stimulate economic growth.

In summary, Visa wins when money changes hands in higher dollar amounts.

Visa has also benefited from the transition from cash to mobile and digital payments, as well as the move to digital currencies instead of cash.

Visa’s nearly perfect business shows no signs of slowing down. And best of all, the stock isn’t overpriced at a P/E ratio of 27.5.

Quality company at a reasonable price

While Microsoft, Broadcom and Visa are very different companies, their stocks are remarkably similar. All three companies can afford dividends without jeopardizing their growth prospects. Given their solid fundamentals and industry-leading positions, all three stocks also have reasonable valuations.

All in all, Microsoft, Broadcom and Visa are well on their way to becoming heavyweights in the passive income space and are worthwhile investments for investors interested in top companies without extreme prices.