"Sacrosanct." That's the word that Daniel Schulman, CEO of Verizon Communications (VZ +0.31%), used to describe his company's 6.6% dividend at its third-quarter earnings conference. Sure enough, the company has grown its payouts for 19 years running, a period that includes the bear market of 2022, the pandemic of early 2020, and the 2008-to-2009 financial crisis.
But while the dividend increases came every year, they haven't been sizable. This year's hike of $0.0125 per share was just a 1.8% increase over last year, barely half the annual inflation rate of 3%. Since 2020, its dividend has grown by 12%, less than half the rate of inflation in that time frame. Zooming out, Verizon's dividend has doubled since 2000, which only modestly outpaces the 88% inflation seen this century.
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On the other hand, it's hard to ignore a 6.6% yield -- if it really is as safe as the CEO asserts -- especially in these times of falling interest rates. Yields above 6% often prove to be siren songs for investors. These value traps, in which yields are momentarily high only because the stock has sold off with good reason, never end well for investors.
So, is Verizon's dividend safe? Here's what the numbers say.
Tens of millions of loyal customers, but the status quo is "not acceptable"
In Verizon's Q3 earnings call last October, Schulman acknowledged an iconic brand with tens of millions of customers but called for a new chapter for Verizon, saying, "The existing status quo is not acceptable for us."
You might wonder why this is, considering that the company raked in $134.8 billion in revenue in 2024 and today provides wireless retail connections to 146.1 million customers. It serves 99% of Fortune 500 companies, and last quarter, 99% of America's population was covered by its 4G LTE service.
But despite posting adjusted earnings and revenue growth last quarter, Verizon has a problem. It's lost 30% of its market share since 2017, and it's now No. 3 in the telecom industry, having lost its top spot amid heightened competition.
Last quarter, the company lost 7,000 postpaid phone customers, and shortly after the Q3 earnings call, Verizon laid off 13,000 employees. These dismissals followed that of Verizon's former CEO, Hans Vestberg, who was ousted in September by a board of directors frustrated with Verizon's performance.
NYSE: VZ
Key Data Points
There's no sugarcoating that Verizon has lost the battle for network leadership, and its new CEO rightly sees it as his mission to win it back. There were glimmers of hope in his October earnings presentation in which he pointed to 306,000 net adds in Verizon's broadband segment, which is up 1.3 million subscribers year over year and totals 13.2 million subscribers.
The company has also achieved efficiency gains that enable cost cutting and allowed Verizon to log $7 billion in free cash flow in Q3. That's a 17% year-over-year increase and a record not just for the company but for the industry.
So, is Verizon's dividend safe?
Despite Verizon's current woes, its dividend looks safe. With a declared quarterly dividend of $0.69 per share on 4.22 billion shares outstanding, the company will shell out $2.92 billion in dividends to investors next quarter. That's less than half of the $7 billion in cash flow from operating activities that Verizon brought in last quarter.
The company is also taking steps to chip away at its debt and paid off $9.4 billion over the last year. That's almost as much as the $11.2 billion that Verizon paid in dividends in 2024, and with interest rates falling, the company can reduce its debt repayments to shore up its dividend if need be.
But while the dividend is unlikely to be cut anytime soon, that doesn't necessarily make the stock right for you. As we've seen over the last five years, dividend hikes are likely to be incremental, perhaps only a fraction of a penny in some years as management steers resources toward a turnaround.
Verizon's dividend growth is unlikely to keep up with inflation, which makes it less desirable for long-term investors. For those with shorter investment horizons, Verizon could be a worthy income play.
