Verizon Communications' (VZ 0.30%) stock has been an attractive investment for dividend growth investors to hold over the years. Today, its dividend yield is close to 8%. That's not typical for the company, and a big reason it's that high is that the stock price has been plummeting to lows it hasn't been at in more than a decade.
Given the adversity facing the business, should investors still expect Verizon to increase its dividend next month?
The company owns an impressive streak
For 16 straight years, Verizon has been raising its dividend. Its streak is the longest in the U.S. telecom industry. Last September, it boosted its per-share dividend to $0.6525, representing an increase of just under 2%. Over the past five years, the company's dividend has risen by less than 11%.
That's not a huge increase, as some companies announce dividend increases that large in just a single year. But what's impressive is the ability of Verizon to maintain and grow its payouts at a sustainable pace without putting itself into trouble.
VZ Dividend data by YCharts.
Verizon's payout ratio remains manageable
Verizon's stock has been struggling this year. It's down 16% as a lack of strong growth, rising interest rates, and concerns about lead-covered cables have made investors bearish on the business. But that doesn't mean the dividend or the business is actually in trouble.
In the company's most recent earnings results, for the period ending June 30, Verizon posted a per-share profit of $1.10. That was down from $1.24 a year ago, but it's still much higher than what it is paying in dividends per share every quarter. The company's payout ratio is around 52%, which is in line with its average over the past three years.
VZ Payout Ratio data by YCharts.
Recently, concerns were raised about the possibility that Verizon may have to spend billions to fix lead-covered cables, that's an expense that may be incurred over several years; it won't necessarily cripple the business. With a manageable payout ratio, Verizon also has a buffer there should it need to budget for an unexpected expense.
In the long run, the company should also get back to growing. Operating revenue of $32.6 billion was down nearly 4% last quarter, but the company says that is mainly a result of lower wireless equipment revenue and people not upgrading their phones as often, which is likely due to the current economic challenges and inflation weighing down consumer purchasing power.
NYSE: VZ
Key Data Points
Is a dividend rate hike coming for Verizon shareholders?
Even though its yield is incredibly high, I expect Verizon will raise the dividend for two reasons.
The first is that it keeps the streak going, and with a modest payout ratio, a 1% or 2% hike isn't going to have a significant impact on Verizon's operations. The second is that it conveys confidence to investors at a time when there clearly isn't much bullishness surrounding the stock. By announcing a dividend increase, management would be making a statement that it believes in its business and that it can weather the current storm. And that could give investors something positive to rally around to hopefully give the beaten-down stock a bit of a boost.
While investors shouldn't expect a big increase, it's probable that Verizon will announce an increase to the dividend next month.
Is Verizon's stock a buy?
If you're a long-term investor, Verizon is a stock you should consider adding to your portfolio. Although the stock keeps sinking, it's not going to remain on that trajectory forever. Economic conditions will improve, there will be more clarity around any liabilities related to lead-covered cables, the business should get back to growing, and investor sentiment should also become more positive as a result of these factors.
As long as you're willing to wait and be patient with the stock and are planning to hold it for at least a few years, this can make for a great income-generating investment to hang on to, especially with its current elevated yield.
