Last update on 2024-06-25

Verizon Communications (VZ) - Dividend Analysis (Final Score: 5/8)

Verizon Communications (VZ) dividend analysis using an 8-criteria scoring system evaluating stability, performance, and historical trends. Final Score: 5/8.

Short Analysis - Dividend Score: 5

We're running Verizon Communications (VZ) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis assesses Verizon Communications (VZ) based on eight criteria, with a score of 5 out of 8. Verizon's dividend yield is significantly higher than the industry average, which is positive for returns but may reflect a declining stock price. The average annual dividend growth rate over the last 20 years has been below the desired 5%, indicating inconsistency in growth. The payout ratio is much higher than the sustainable benchmark of 65%, suggesting financial stress and limited reinvestment into the business. While Verizon's dividends are generally well covered by cash flow, there have been fluctuations, indicating variability in financial management. The company has provided stable dividends for 20 years and paid dividends for over 25 years straight, showing commitment to shareholders. However, stock repurchases have been inconsistent. Overall, Verizon has some strong points for income investors but raises concerns about long-term sustainability due to high payout ratios and inconsistent growth rates.

Insights for Value Investors Seeking Stable Income

While Verizon Communications (VZ) offers some attractive features like a high dividend yield and stable payouts, the high payout ratios and inconsistent dividend growth rates are concerning. Potential investors should be cautious and consider these risk factors. If you're seeking stable income, Verizon can be a good choice, but for long-term growth, it may not be ideal due to its high payout ratios and financial stress indicators. Further investigation and consideration of your investment goals are recommended.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a measure of the dividend income you can expect from an investment relative to its price. It is an important indicator as it reflects the return on investment for shareholders and is often used by investors to compare profitability between different companies and industries.

Verizon Communications' (VZ) current dividend yield of 6.9602% is significantly higher than the industry average of 3.56%. This trend is observable throughout the past 20 years, where Verizon’s dividend yield consistently hovers above the industry benchmark. For instance, during the financial crisis of 2008-2009, Verizon's dividend yield peaked at 5.5991% compared to the industry average of 2.86-3.8%. This sustained trend suggests a higher return on investment for Verizon shareholders in terms of dividend income. On the other hand, a high dividend yield can sometimes indicate a lower stock price. Verizon's stock price has indeed seen a decline, down from $61.4 in 2019 to $37.7 in 2023, which might partially explain the rising dividend yield. Therefore, while a high dividend yield is advantageous for income-focused investors, it is also crucial to evaluate the reasons behind the high yield, including stock price performance and overall company health.

Average annual Growth Rate higher than 5% in the last 20 years?

The dividend growth rate reflects how consistently a company has increased its dividend payouts over time.

Analyzing the dividend per share ratio from 2003 to 2023 for Verizon Communications (VZ), it can be observed that the dividend growth rate has been irregular and often below the threshold of 5%. There have been significant fluctuations, such as the dramatic spike in 2007 at 5.4087 and in 2008 at 6.7592, followed by substantial drops to levels like 2.5967 in 2012 and 1.9821 in 2023. The average dividend ratio is 3.108, considerably below the desired 5% growth rate. Therefore, this trend is concerning as it indicates inconsistencies in the company's ability to maintain a steady dividend growth rate.

Average annual Payout Ratio lower than 65% in the last 20 years?

Payout ratio signifies the proportion of earnings a company pays to shareholders in dividends. A payout ratio lower than 65% is considered sustainable as it indicates the company is reinvesting enough earnings back into the business.

Verizon Communications (VZ) has an average payout ratio of 111.665% over the last 20 years. This is significantly higher than the sustainable benchmark of 65%, indicating that the company has on average been paying out more in dividends than its earnings. This trend is concerning as it suggests that Verizon might not be reinvesting sufficient earnings back into the business, potentially compromising its long-term growth and financial stability. Moreover, with specific years like 2011 (231.932%) and 2012 (659.143%) showing extremely high payout ratios, there are clear signs of financial stress during certain periods. While some years, such as 2017 (31.5697%) and recent years like 2020 (47.449%), show better ratios, the overall trend raises red flags about the sustainability of Verizon's dividend policy.

Dividends Well Covered by Earnings?

Why should dividends be well covered by the earnings?

It is important for a company to have its dividends well covered by earnings to ensure that it is not over-distributing profits at the expense of future growth or financial stability. If dividends are not adequately covered, it could suggest that the company is borrowing or liquidating assets to pay dividends, which is unsustainable in the long term.

Dividends Well Covered by Cash Flow?

This criterion assesses if the company’s free cash flow is adequate to cover its dividend payout.

The data over the past 20 years shows a fluctuating but generally positive trend in Verizon's capability to cover its dividends with free cash flow. Strong coverage ratios (above 1) were seen in 2014 (1.81) and 2022 (1.038), indicating that during those years, Verizon generated significantly more free cash flow than it needed for its dividend payout. However, there are years with weaker coverage, such as in 2009 (0.363) and 2021 (-0.369), with 2021 showing inadequate cash flow to cover its dividends. Despite these variances, the trend is relatively stable, suggesting prudent financial management overall. Generally, a ratio above 1 is good, indicating more than enough free cash flow to cover the dividends, with increasing ratios showing stronger coverage.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years mean that the company consistently pays out dividends without significant drops, especialy not exceeding a drop of 20%. This criterion is important for income-seeking investors because it ensures reliable and predictable income flows.

Over the past 20 years, Verizon Communications (VZ) has shown a consistent and stable increase in its dividend per share, rising from $1.385 in 2003 to $2.624 in 2023. There hasn't been a single year where the dividend was dropped by 20%, demonstrating the company's commitment to returning value to its shareholders. This stability is promising and indicative of a healthy, income-generating stock for long-term investors.

Dividends Paid for Over 25 Years?

Check if a company has maintained a consistent dividend payout for over two decades.

Verizon Communications has consistently paid dividends for 26 consecutive years from 1998 to 2023. This consistent dividend payout underscores the company's commitment to returning profits to shareholders. Additionally, the dividends per share (DPS) has shown an increasing trend, rising from $1.385 in 1998 to $2.624 in 2023. This increasing trend is favorable as it indicates the company's robust financial health and its ability to generate free cash flows, allowing the company to reward shareholders progressively. Such a trend is pivotal for income-focused investors, substantiating Verizon's position as a reliable dividend-paying stock.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

The criterion of reliable stock repurchases over the past 20 years is essential for understanding a firm's commitment to returning value to shareholders and its confidence in its own equity. Examining Verizon (VZ), the company's number of shares outstanding fluctuated with significant repurchases in years like 2005, 2007, 2008, 2009, 2010, and 2016. This trend shows Verizon has periodically engaged in reducing its share count. However, in the remaining years, the share count did not decrease consistently. The overall repurchase trend appears sporadic at best, indicating Verizon may not have a robust, ongoing policy for stock repurchases. This fragmented approach is less favorable for investors seeking consistent, reliable share buybacks.