Updated on June 25th, 2024 by Bob Ciura
Verizon Communications (VZ) is a high dividend stock currently yielding over 6%, and the company has increased its dividend for 19 consecutive years.
Verizon is part of our ‘High Dividend 50’ series, where we cover the 50 highest yielding stocks in the Sure Analysis Research Database.
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Its strong dividend history is due to its recession-resistant business model, and competitive advantages that we believe will allow them to continue raising the dividend for years to come.
Verizon is a blue-chip dividend stock and a leader in the telecommunication services sector. This article will analyze the telecom giant Verizon Communications, and the safety of its dividend.
Business Overview
Verizon is a leading provider of technology and communications services. The company we know today was formed due to a merger between Bell Atlantic Corp and GTE Corp in June 2000. Verizon reports in two segments: Verizon Consumer Group and Verizon Business Group.
Its wireless business makes up about ~75% of total revenues, with broadband and cable services accounting for roughly one-quarter of sales.
In the 2024 first quarter, Verizon’s revenue increased by 0.3% to $33 billion. Adjusted earnings-per-share of $1.15 declined 4.2% year-over-year.
For the quarter, Verizon had postpaid phone net losses of 68K, while retail postpaid net additions totaled 253K.
Source: Investor Presentation
Wireless revenue increased 3.3% to $19.5 billion while the Consumer segment increased 0.8% to $25.1 billion. Wireless retail postpaid phone churn rate remains low at 0.89%.
Broadband totaled 389K net new customers during the period, the 7th consecutive quarter of at least 300K net adds. This included 151K fixed wireless net additions, which was a 10.2% increase from the prior year and the best quarterly result to date.
Verizon reaffirmed guidance for 2024 as well. The company still expects wireless service revenue to grow 2% to 3.5%
and adjusted earnings-per-share in a range of $4.50 to $4.70.
Growth Prospects
Telecommunications offer utility-like services that typically generate slow growth. Verizon grew its adjusted EPS by approximately 4% per year in the past decade.
Over the next five years, we expect Verizon to grow earnings by 2%-3% annually. The company expects 5G Mobility to fuel the bulk of its growth through 2025. In fact, about half of the company’s growth is anticipated to come from 5G.
Another strong growth driver will be nationwide broadband growth. The company’s expanded footprint will cover 50 million households and 14 million businesses by the year-end of 2025. Fios also expects to reach 8 million internet subscribers by year-end 2025.
The MEC & B2B Solution business will continue growing Internet of Things (IoT) revenue as it anticipates annualized double-digit connections growth through 2025.
And lastly, Value Market and Network Monetization will make up the rest of the company’s expected growth in the years ahead.
Competitive Advantages & Recession Performance
A key competitive advantage of Verizon is that it can often be considered the best wireless carrier in the U.S. This is clear when looking at the company’s wireless net additions and very low churn rate.
The reliability of their service has led to a satisfied and intact customer base. This same customer base may then move to higher-priced plans.
The company also operates a business with recession-resistant qualities. Verizon customers will likely keep their wireless and broadband service, even during recessions.
The massive infrastructure behind Verizon’s business would be difficult to replicate today, meaning the company has a fairly wide moat.
Dividend Analysis
Verizon’s strong business model and competitive advantage provide it with high free cash flow. In turn, high free cash flow allows Verizon to service its debt, and return significant cash to shareholders through dividends.
For example, in the 2024 first quarter Verizon’s free cash flow grew 17.4% year-over-year, to $2.7 billion.
Source: Investor Presentation
Verizon’s forward dividend per share is $2.66. At the current share price, Verizon is yielding 6.5%.
According to management’s outlook, Verizon is forecasted to earn $4.60 in adjusted EPS for the year. Therefore, the company is forecasted to pay out about 58% of adjusted EPS in dividends.
This is a healthy payout ratio for a telecom company. The security of the payout ratio and the solid expected growth rate of the company should lead to more dividend increases down the line.
In the last decade, Verizon has grown its average dividend by 2.6% per year. Given a forecasted earnings growth rate of 4.0%, the payout ratio will moderate in the future as earnings growth outpaces dividend growth.
Final Thoughts
In recent years, Verizon divested its non-core media segment as it aims to focus on its core competencies of telecommunications. The company has executed solidly in the last decade and should continue to do so going forward, albeit at a slower rate.
Verizon has increased its dividend for eighteen consecutive years. Not to mention, the payout ratio as a percent of adjusted earnings is only 50%. Given the company is still growing, the dividend is secure, and we expect it to continue growing.
The company’s 6.5% yield is attractive for income investors. Value investors may also like the company here as we believe it’s trading below fair value.
If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:
High-Yield Individual Security Research
- 20 Highest Yielding Monthly Dividend Stocks
- 10 Super High Dividend REITs
- 5 Highest Yielding Royalty Trusts
Other Sure Dividend Resources
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- High Dividend Stocks: 5%+ dividend yields
- Monthly Dividend Stocks: Individual securities that pay out every month
- Blue Chip Stock: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more