Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Verizon’s dividend history and safety…
Business Overview and Highlights
Verizon (NYSE: VZ) is a $236 billion telecommunications conglomerate. The company is based out of New York and it employs 144,500 people. Last year Verizon pulled in $131 billion in sales and that works out to $906,000 per employee.
The company operates within the communications sector and maintains a solid credit rating (BBB+) from the S&P. This allows Verizon to issue cheap debt to expand operations and pay dividends.
Verizon and AT&T are currently racing to roll out their 5G networks. Verizon may have the advantage because they consistently rank as the top wireless carrier in polls. That should help them attract new customers while upgrading existing ones. Verizon has already unveiled its 5G network in Minneapolis and Chicago.
On March 8, 2019 Verizon’s board of directors declared a dividend of $0.60 per share. The dividend is made payable May 1 to shareholders of record on April 10.
10-Year Dividend History
The company paid investors $1.87 per share a decade ago. Over the last 10 years, the dividend has climbed to $2.39. That’s a 28% increase and you can see the annual changes below…
The compound annual growth is 2.5% over 10 years… but over the last year, the dividend climbed 2.1%. The slowdown in dividend growth isn’t a great sign. Although, Verizon still might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Verizon’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 4.23% and that’s below the 10-year average of 6.44%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Verizon earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Verizon’s payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. The 2016 spike is the result of a few factors. First, in 2015 Verizon’s capital spending jumped $10 billion from the previous year. Then in 2016 their revenue dipped causing their net income to decrease. Fortunately, the last reported year shows a payout ratio of 55.7%. This gives wiggle room for Verizon’s board of directors to raise the dividend.
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