Verizon (VZ) dividend analysis

By: ispeculatornew
Date posted: 01.12.2011 (5:00 am) | Write a Comment  (3 Comments)

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Yesterday we wrote a post about the impacts of the Iphone being offered on Verizon (VZ) but we focused on Apple’s (AAPL) point of view. That being said, Verizon is one of the top dividend stocks in the US and this deal could significantly change the medium and long term perspectives for investors that are looking to build a strong and consistent passive income portfolio. Even in the past, I had considered adding Verizon to my top picks but this latest deal puts the carrier in a great position.

How does this change things for Verizon?

-Verizon is now one of two carriers that can offer both Android and Apple smart phones
-The fact that it was picked by Apple is a signal that the investments in its network  are paying off
-As an increasing number of corporate accounts consider using Apple, they will now have the option to bring their accounts to Verizon

So just how does Verizon rank as a dividend stock?

Of course, we will be ranking Verizon based off of the top 20 things that we consider when evaluating dividend stocks.

Dividend Metrics

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How often do you see a stock that has a dividend yield over 5% that has increased both over 1 year and over 5 years? It’s very rare. From a dividend perspective, Verizon is a very solid choice and the two main questions would be:

-Can Verizon afford to keep up the dividend payments?
-Can Verizon continue to increase its dividend?

Company Metrics

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No doubt, these numbers are not as impressive. Verizon has seen decreased earnings, is paying out more than what it is making, and has a fairly high level of debt. It’s not uncommon for a communications company to be struggling these days because of the very high level of competition in the industry. That being said, the sales are growing and the arrival of the Iphone should help sales growth accelerate but also improvement in the margins and earnings. Hopefully that will be enough to bring down the payout ratio without having to tough the dividend payout.

Stock Metrics

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In technical terms, there is no doubt that the stock looks very attractive and it’s trend analysis score is also very impressive

Industry Metrics & Fit within your portfolio

No doubt, the communications industry is a difficult one and while it’s not as bad as the airline industry, there are quite a few similar aspects between the two. Large investments are required and there is so much competition that price pressures are very high which makes it very difficult to sustain a hgh profitability level. There is consolidation going on which will certainly help in the medium to long term.

That being said, Verizon is one of the companies that is starting to make a strong name for itself and the arrival of the Iphone will certainly help in those matters.

Overall Analysis

I think that if you do not have a communications company in your dividend portfolio, Verizon might be the one for you. It is in a great position and will certainly have a major sales and reputation boost that will translate in additional business outside of the Iphone as well. That being said, I’m a bit worried about the high payout ratio and the diminishing margins. The investments required to upgrade Verizon’s network if the Iphone demand is high could continue to put pressure on those margins.

So I would not consider Verizon at the very top of dividend stocks but it would still be a very nice addition to most portfolios.

Do you agree?

Disclosure: Long Apple, No positions on Verizon

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  1. Comment by Hugh Snodgrass — January 12, 2011 @ 9:53 am

    What happens when VZ starts paying royalties to VOD ? ? ?

  2. Comment by The Passive Income Earner — January 12, 2011 @ 4:03 pm

    From a dividend investment perspective, AT&T has a better proven record of increasing dividend yearly. I think the iPhone concern for AT&T is blown out of proportion.

  3. […] Speculator presents Verizon (VZ) dividend analysis posted at Intelligent Speculator, saying, “Some thoughts on the dividends provided by […]

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