Is Verizon the Best Dividend Stock to Buy Right Now?

Verizon Communications (VZ -0.73%) stock has taken a beating for a while now. Over the past three years, its shares are down close to 40%, and the stock is trading around the levels it was at in 2011. While the business hasn't been generating massive growth, it hasn't become an incredibly risky stock to own, either.

Investors appear to be overly bearish on the stock amid rising interest rates and concerns about where the economy is heading, and what that might mean for Verizon. Here's why the stock could be a steal of a deal for dividend investors right now.

Verizon's free cash flow looks solid

On Oct. 24, Verizon posted its third-quarter earnings, for the period ending Sept. 30. Although revenue of $33.3 billion was down 2.6% and profits also fell by 2.8% to $4.9 billion, it was the strong free cash flow that should have investors bullish on the business.

Year to date, Verizon has generated $14.6 billion in free cash, up from $12.4 billion a year ago. Free cash is imperative for a company that pays dividends, as that means there's more room for the business to distribute capital back to its shareholders. Over a 12-month period, Verizon pays out approximately $11 billion in dividends. This year, the company projects free cash flow to be north of $18 billion. This is $1 billion more than what it was previously forecasting, thus, making the dividend even safer than it was before.

The yield remains high, but it may not last for long

Verizon's dividend yield is better than 7%, which is astronomical for a business that isn't struggling or under financial duress. At that high a payout, you'd only need to invest $13,000 in order to receive $1,000 in annual dividend income. The S&P 500, by comparison, averages a yield of only 1.7%.

Buying Verizon's stock right now would allow you to secure a high yield that may not last. As investors come to realize the business is still in good shape and they grow more bullish on the dividend stock, the price is likely to rise. And as that happens, the yield will fall, since it will cost more money to secure the same payout.

Verizon has a strong track record of dividend growth

What makes Verizon stand out even more for income investors is its dividend growth streak. For 17 straight years, it has raised its payouts, with its most recent hike coming in September. The rate increase was just a 2% bump, but it gives investors an incentive to buy and hold, as an investor's dividend income may rise over time as the business performs well.

In five years, Verizon's dividend payments have increased by more than 10%. The company also claims to have the longest dividend growth streak of any U.S. telecom stock.

There is risk, but it shouldn't deter investors

Verizon is carrying more than $134.4 billion in long-term debt on its books, but that's down from $140.7 billion as of the start of the year. And with operating income of nearly $7.5 billion this past quarter, the company is in a good position to cover interest expenses, which totaled $1.4 billion. Verizon is able to easily cover its interest expenses, and if economic conditions slow down and interest rates fall, the company will be in even better shape to bring down its interest costs in the future.

There's also the exposure the company faces with respect to lead-covered cables that investors may be worried about. Those costs, however, are difficult to predict (this risk is relatively new and was uncovered through a report from The Wall Street Journal earlier this year), and paying any cleanup costs could span years. This, again, is why the company's strong free cash flow is important -- it puts Verizon in an excellent position to pay dividends and also cover any unexpected expenses.