2 Elite Dividend Growth Stocks I'm Buying on the Dip

Wall Street's dramatic reaction to DeepSeek's AI announcement on Monday created compelling opportunities in unlikely places. As panic selling wiped out $1 trillion in market value in U.S. tech stocks, even stalwart dividend growth stocks like ASML (NASDAQ: ASML) and Microsoft (NASDAQ: MSFT) got caught in the crossfire.

These companies, with their diversified revenue streams and crucial positions in the tech ecosystem, saw their shares tumble despite fundamental business models that extend far beyond AI chip demand. The market's failure to differentiate between pure-play AI stocks and established dividend-paying tech leaders has created an attractive entry point for income-focused investors.

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I plan on capitalizing on this pullback by buying shares of both ASML and Microsoft soon. Here's why.

A monopoly on chip manufacturing's future

ASML's shares dropped 7.1% Monday despite the company's unique position as the sole manufacturer of extreme ultraviolet (EUV) lithography machines -- equipment essential for producing advanced semiconductors. This monopoly on a critical technology makes ASML largely immune to short-term AI chip demand concerns, as every major semiconductor manufacturer requires their machines to produce any advanced chip, AI-focused or not.

The company's dominant market position is further reinforced by the increasing complexity of semiconductor manufacturing. As chip designs become more sophisticated, ASML's EUV technology becomes even more critical to the industry. This technological moat, combined with long-term service contracts and high switching costs, provides exceptional visibility into future cash flow, making ASML a solid dividend growth play.

With a modest 0.92% yield but an impressive 27.2% three-year dividend growth rate and a conservative 35.2% payout ratio, ASML offers dividend growth investors a rare combination of monopoly economics and substantial room for dividend growth. Trading at 29.6x forward earnings -- only moderately above the S&P 500's 24.3x -- I view this pullback as an opportunity to initiate a position in this essential technology provider.

Beyond AI: A dividend powered by multiple moats

The market's AI panic dragged Microsoft down 2.49% Monday, creating an attractive entry point into one of technology's strongest dividend-growth stories. While the market frets about AI chip demand, Microsoft continues to dominate multiple high-margin businesses: Windows, Office, Azure cloud services, and gaming -- each protected by powerful network effects.

Microsoft's 0.75% yield might appear modest, but its rock-bottom 24.7% payout ratio and 10.2% three-year dividend growth rate imply significant room for future increases to the payout. The tech giant's diverse revenue streams, strong balance sheet, and strategic AI investments through OpenAI position it well for continued growth.

While its 33.6x forward price-to-earnings (P/E) ratio represents a premium to the broader market, represented by the S&P 500, I believe Microsoft's formidable competitive advantages and stellar dividend growth potential justify its premium valuation.

Keeping with this theme, the tech behemoth's transformation under CEO Satya Nadella has created multiple growth engines beyond its traditional Windows and Office franchises. Azure's strong position in enterprise cloud computing, coupled with the gaming division's expansion through acquisitions like Activision Blizzard, provides additional streams of recurring revenue to support future dividend growth.

Buying quality dividend stocks on the dip

Monday's AI-triggered sell-off has created an opportunity to buy two world-class dividend growth stocks at attractive valuations. Both ASML and Microsoft possess durable competitive advantages, conservative payout ratios, and proven track records of above-average dividend growth.

Their recent price weakness appears driven by market confusion rather than any fundamental change in their business prospects. For long-term dividend growth investors, this temporary disconnect between price and value offers a compelling chance to build positions in two of technology's strongest franchises.

Should you invest $1,000 in ASML right now?

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George Budwell has positions in Microsoft. The Motley Fool has positions in and recommends ASML and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.