A key reason investors may want to buy shares of Verizon Communications (VZ +0.71%) is for its dividend. Not only does the telecom giant offer a mouthwatering yield of 6.7%, but it has also increased its payout for 19 straight years. For income investors, there can be a lot of value in holding on to the stock for the long term.
But often when a yield is this high, investors question whether it's really safe. If a dividend ends up getting cut, then not only can the dividend income become drastically reduced, but the stock could nosedive in an instant. Thus, there's often some apprehension with high-yielding stocks. And recently, Verizon announced massive job cuts.
Could this be a sign that its dividend really isn't all that safe?
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New CEO is making cost reductions a big priority
Last month, Verizon announced a significant change with Dan Schulman, formerly CEO of PayPal, coming in to take over from Hans Vestberg. Verizon has been struggling to generate much growth in recent years, and Schulman is focused on improving customer experiences, which can be key to boosting the company's sluggish top line. This year, Verizon anticipates its wireless service revenue will rise by around just 2%.
Schulman has wasted little time in making a big shakeup, with the company recently announcing that it will be laying off 13,000 employees. As of the end of 2024, it had close to 100,000 full-time workers. Schulman's plan is to become leaner in order "to address the complexity and friction that slow us down and frustrate our customers."
Job cuts can be concerning, but given new artificial intelligence (AI) tools and the potential to add efficiency to its operations, Verizon's new CEO may see opportunities to trim costs while improving workflows. Large companies can sometimes get bogged down with bureaucracy and long turnarounds for simple requests. Reducing staff could prove to be a win-win for Verizon in the long run.
How safe is Verizon's dividend today?
Despite news of significant job cuts, Verizon's business isn't struggling with profitability. In fact, the company's earnings have been fairly consistent over the past four quarters, with net income normally around $5 billion. The stock's dividend also looks well-supported with its payout ratio below 60%.
The job cuts, however, could give the company more flexibility to pursue growth initiatives while still being able to keep its dividend intact. Management likely knows how valuable the dividend is to investors, and the cost-reduction efforts could enable the business to try to invest in its growth while still being able to offer an enticing dividend.
NYSE: VZ
Key Data Points
Verizon may be one of the best dividend stocks to own right now
Year to date, shares of Verizon are up by just 3%, which is far behind the S&P 500's gains of 13%. Investors have largely focused on growth stocks, in particular those involved with AI. But Verizon can make for a compelling option if you are looking for long-term stability and dividend income.
As a leading company in the telecom industry, Verizon is a relatively safe blue chip stock to hang on to for the long term. It trades at a forward price-to-earnings multiple of less than 9, which gives investors some excellent margin of safety.
Although there may not be a near-term catalyst to turn things around for the stock, Verizon can be a good investment to simply buy and hold, and the dividend income you'll earn from it could offer you some great compensation in exchange for remaining patient with the business.
