American business magnate John D. Rockefeller reportedly once said that the only thing that brought him pleasure was seeing his dividends come in. Most people will hopefully be able to find additional sources of joy in life, but having a steady stream of dividend income can certainly make things more pleasant.
If you'd like to generate more than $1,200 in annual dividend income with a $17,500 investment in just one stock, read on for a look at this top income-investment opportunity. It could even deliver significantly better returns on the stock purchase.
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A best-in-class dividend profile
Income investors on the hunt for value stocks with big dividends and solid underlying businesses should check out Verizon Communications (VZ 0.24%). The company stands as the U.S.'s largest wireless service provider, and the roughly 7% dividend yield on its stock offers attractive income generation.
With a $17,500 investment, those buying the stock would earn roughly $1,200 annually through dividend payments based on the current yield. Verizon pays out its dividend on a quarterly basis, so shareholders can earn just over $300 every three months as a reward for taking a buy-and-hold approach with the stock's current payout. It's likely that income generation will continue to climb above that level.
Verizon currently has the longest payout growth streak for any U.S. telecom company, with 16 years of annual consecutive increases to its payout. The telecom increased its payout last September, and it's likely that it will once again raise its distribution this fall.
Verizon's business can support payout growth
No doubt about it, Verizon is not a high-growth business. But the company continues to look sturdy, it pays a big dividend, and it might actually have some underappreciated avenues to improving earnings and free cash flow.
Image source: The Motley Fool.
As the infographic above shows, Verizon's revenue inched up roughly 1.8% year over year in the fourth quarter to reach $34.67 billion. The consumer segment remained the business's biggest sales and growth driver, accounting for roughly 77% of overall revenue. Meanwhile, the business segment saw softer growth due to declining sales for the category's wireline component, but offerings in the private 5G network and edge-computing spaces have the potential to emerge as stronger growth drivers down the line.
Due to big infrastructure investments and some inflationary pressures, Verizon's free cash flow declined from $19.3 billion in 2021 to $14.1 billion last year. But even with a down year for FCF, the business remained a cash-generating machine that handily covered the $10.8 billion in dividends it paid out in the year.
With the company now able to cut back on spending on C-band wireless spectrum to build out its 5G network, free cash flow should be under less pressure this year. Additionally, the company expects to be able to achieve between $2 billion and $3 billion in annualized savings by 2025. Between slow but steady sales volume growth for its consumer and business segments, reduced infrastructure spending, and other cost-saving initiatives, Verizon has avenues to solid earnings, FCF, and dividend expansion.
An attractive valuation profile and income opportunity
In addition to its hefty dividend yield, Verizon stock is cheaply valued. Trading down 27% over the last year and 40% from its high, the telecom giant sits at bargain-level prices. Shares trade at just 8 times this year's expected earnings.
VZ PE Ratio (Forward) data by YCharts
In addition to the stock being a strong income generator, the company's sturdy core wireless business and cheap valuation leave the door open for significant capital appreciation. With the stock trading at low price-to-earnings multiples and sporting a fantastic yield, Verizon stands out as a top stock for income-seeking investors.
