Verizon Communications Inc. (NYSE: VZ) is about to trade ex-dividend in the next four days. You will need to buy shares before January 7 to receive the dividend, which will be paid on February 1.
Verizon Communications’ next dividend is $ 0.63 per share after the past 12 months, when the company distributed a total of $ 2.51 per share to shareholders. Based on last year’s payments, Verizon Communications has a final yield of 4.3% over the current stock price of $ 58.75. Dividends are an important source of revenue for many shareholders, but the health of the business is crucial to maintaining these dividends. That is why we must always check whether the payment of dividends looks sustainable and whether the company is growing.
See our most recent review from Verizon Communications
If a company pays more dividends than it has earned, then the dividend can become unsustainable – hardly an ideal situation. Verizon Communications paid 56% of its earnings to investors last year, a normal payment level for most companies. However, cash flows are even more important than earnings to value a dividend, so we need to see if the company has generated enough cash to pay for its distribution. It paid more than half (53%) of its free cash flow last year, which is within an average range for most companies.
It is encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests that the dividend is sustainable, as long as profits do not plummet.
Click here to see the company’s payment rate, in addition to analysts’ estimates of its future dividends.
Are earnings and dividends growing?
Companies with strong growth prospects are often the best dividend payers, because it is easier to increase dividends when earnings per share are improving. Investors love dividends, so if profits fall and dividends are reduced, expect a stock to sell heavily at the same time. Fortunately for readers, Verizon Communications’ earnings per share have been growing 13% per year for the past five years. Verizon Communications is paying slightly more than half of its profits, which suggests that the company is finding a balance between reinvesting in growth and paying dividends. This is a reasonable combination that may suggest some additional dividend increases in the future.
The main way that most investors assess a company’s dividend prospects is by looking at the historical rate of dividend growth. Verizon Communications has delivered dividend growth of 2.8% per year, on average, for the past 10 years. Earnings per share have been growing much faster than dividends, potentially because Verizon Communications is retaining a larger share of its profits for business growth.
summing up
Does Verizon Communications have what it takes to maintain its dividend payments? Higher earnings per share generally leads to higher dividends on shares that pay dividends in the long run. However, we would also note that Verizon Communications is paying more than half of its earnings and cash flow as earnings, which could limit dividend growth if earnings growth slows down. In summary, while it has some positive features, we are not inclined to rush out and buy Verizon Communications today.
In light of this, while Verizon Communications has an attractive dividend, it is worth knowing the risks involved in doing so. To help with that, we found 2 warning signs for Verizon Communications that you should be aware of before investing in your shares.
A common investment mistake is to buy the first interesting stock you see. Here you can find a list of promising dividend stocks with a yield greater than 2% and a future dividend.
This Simply Wall St article is of a general nature. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to bring you an analysis focused on the long term, conducted by fundamental data. Please note that our review may not take into account the latest ads from companies sensitive to prices or qualitative materials. Simply Wall St has no position in any of the aforementioned shares.
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