Dividend investors come in all varieties, but most often, they are near retirement and trying to create a source of cash flow. Still, that doesn't disqualify younger investors from taking an interest in, or owning, dividend stocks.
One of the most popular dividend stocks is Verizon Communications (VZ 0.25%), and for a good reason: It pays a 7.1% dividend yield. That's a hefty payout and better than many stocks offer, which makes it seem like a no-brainer stock to purchase.
But is it a good stock for all investors? Let's take a look.
NYSE: VZ
Key Data Points
Verizon's dividend is safe
If you live in the U.S., Verizon needs no introduction, as it is the country's second-largest phone carrier by market share. Because phone subscriptions are essential in today's digital society, Verizon's cash flows are steady. This allows the company to pay an above-average dividend, making it more akin to a utility company.
Furthermore, Verizon's dividend payout ratio is fairly low compared to historical levels.
VZ Payout Ratio data by YCharts
This is crucial as it shows that the hefty dividend which Verizon is paying now is very safe. It also has room to raise it, just as it did in its most recent payout (Verizon increased its quarterly dividend per share from $0.6525 to $0.665, a 2% increase).
Even though the dividend is safe, Verizon's business hasn't necessarily been doing well. Because Verizon is a mature company, it isn't growing quickly. In fact, Verizon's revenue has recently declined, and it hasn't increased much in the past decade.
VZ Revenue (TTM) data by YCharts
This calls the dividend's future into question as stagnant revenue combined with rising operating expenses will squeeze Verizon's resources. However, Verizon's payout ratio has a significant cushion, so it should be safe for a long time. Still, the lack of growth is something to be concerned about, especially when assessing a stock's total return.
The stock has been a historical loser
When assessing a dividend-paying stock, investors must consider total return, combining stock price movement and dividends. While Verizon's 7.1% dividend yield helps its case, the stock has lost significant value over the past decade, which drags down its total return.
| Time Frame | Return |
|---|---|
| 1 Year | 3.2% |
| 3 Years | (26.9%) |
| 5 Years | (17.8%) |
| 10 Years | 20.8% |
Data source: YCharts. Returns are as of 11/25/2023.
So, if you bought Verizon's stock five years ago, you would have lost nearly 20% on your initial investment, even with dividends added in. That's a terrible investment, especially considering the S&P 500's 88% total return in that same time frame.
If you're worried about creating a 5% to 7% return on your investment and living off that (like in retirement), then Verizon may be a fairly safe way to do that. However, I'd argue that a basic S&P 500 index fund could do the same.
For younger investors who are some time away from retirement, Verizon is a terrible stock pick. While the 7% yield is cool, Verizon has been a historically losing investment and shows no signs of changing, with its revenue falling in recent quarters. The only saving grace for Verizon as an investment is its dirt cheap stock price.
VZ PE Ratio data by YCharts
This is the cheapest Verizon's stock has been since it was artificially low in 2018. As a result, it may also be an attractive investment for value investors. Still, there's a reason the stock has gotten this cheap, and a lot of it is due to its lack of growth.
Verizon is not a stock for everyone, and anyone who invests in it needs to understand the risks they are taking. If you're in it for the dividend and the dividend alone, then Verizon may be a great stock choice. But for a long-term pick, there are much better stocks out there.
