Telecom can be a good industry to invest in if you're looking for long-term stability and dividend income. But that doesn't mean you'll get great returns. Verizon Communications (VZ 1.17%) is one of the top telecom stocks in the country, and it has struggled in 2023. Year to date, its share prices are down 4%, while the S&P 500 jumped by more than 23%.
Is this really a bad year for Verizon, or is this just the norm? And even if its gains aren't impressive, could this still be a good investment to hang on to for the long haul?
Verizon doesn't have a great track record for outperforming the markets
Unfortunately, this year isn't that much of an anomaly for Verizon's stock. Neither being down in negative territory nor underperforming the S&P 500 is unusual territory for the stock. Here's a comparison of how it has done versus the broad index in the previous 10 years.
Image source: yCharts. Chart by author.
In just two of the past 10 years, Verizon's stock has done better than the S&P 500. These days it's battling high interest rates, inflation, and weaker consumer demand. The one positive spin you can make is that at least the stock's losses aren't as steep as last year's 24% decline.
Why Verizon could still make for a good long-term investment
Verizon and other telecom companies often trade subscribers back and forth, so it can be difficult to generate any significant, meaningful growth. In the past decade, for example, the company has averaged a fairly minimal growth rate of just 1%.
VZ Revenue (Quarterly YoY Growth) data by YCharts
By and large, Verizon is a stock that's most suitable for dividend investors. With its modest valuation, the dividend's yield is 7.1%, which is a payout that is close to five times the S&P 500 average of 1.5%. Investors are getting some good dividend income from Verizon's stock. And over the years, the company has also increased its payouts.
VZ Dividend data by YCharts
Verizon's business is still in good shape
Despite the struggling share price, the business remains in good shape, with Verizon projecting free cash flow to top $18 billion this year, $1 billion higher than its previous guidance. And its wireless service revenue may also rise by as much as 4.5%.
The stock's payout ratio of 53% also suggests that there is plenty of room for Verizon to continue increasing its dividend in the years to come; its streak currently sits at 17 consecutive years of dividend hikes.
Should you invest in Verizon's stock?
If you're a growth investor, you're better off looking elsewhere. But for dividend investors who are more concerned with recurring payouts than a market-beating stock, Verizon can make for a solid long-term investment. While the stock should still rise in value given its incredibly low valuation (it trades at only 8 times earnings), investors should make sure to temper their expectations for the stock.
