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How Dividends Lift Verizon's Stock

By Anders Bylund - Apr 8, 2013 at 2:03PM

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Without a generous dividend policy, Verizon's stock wouldn't be nearly the market-beating machine you see today.

It's a well-known fact that Verizon (VZ 1.75%) offers one of the strongest dividends on the Dow Jones Industrial Average (^DJI 1.05%). But how do these generous payouts really affect Verizon's stock?

With a current yield of 4.2%, Big Red offers the second-largest yield on the blue-chip index, just behind arch rival AT&T 's (T 1.67%) 4.7% and virtually tied with Intel (INTC -2.86%).

Verizon's dividends make a huge difference in the long run. The stock itself has been lagging behind the average Dow peer over the last 10 years, but the tables are turned if you reinvested Verizon's dividend checks into more Verizon stock:

VZ Chart

VZ data by YCharts.

Verizon shares get a massive adrenaline shot from dividends, but not by boosting the policy by drastic amounts. Like Ma Bell's, Verizon's capital-intensive business has been mature for decades, leaving little room for outrageous growth. Not even the smartphone boom of the last five years did much to juice the giants' top lines. And so their dividends keep growing like racing turtles; slow and steady wins the race.

VZ Dividend Chart

VZ Dividend data by YCharts

By contrast, Intel has doubled its sales and increased dividend payouts ninefold over the same period. But then, that raging growth leaves the stock open to value-destroying damage if Intel's growth slows down. The purported "death of the PC" is doing some of that dirty work right now.

Verizon stock is largely immune to such high expectations. Its investors are happy with a slower rise in share prices and dividend payouts. Verizon is a conservative stock for risk-averse investors.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,097.26 (1.05%) $321.83
AT&T Inc. Stock Quote
AT&T Inc.
$21.31 (1.67%) $0.35
Intel Corporation Stock Quote
Intel Corporation
$36.34 (-2.86%) $-1.07
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$51.64 (1.75%) $0.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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