Verizon Communications Inc. (NYSE: VZ) is about to trade ex-dividend within the next four days. You must buy shares before January 7 to receive the dividend paid on February 1.
Verizon Communications’ upcoming dividend is US $ 0.63 per share, following the past twelve months, when the company distributed a total of US $ 2.51 per share to shareholders. Based on last year’s payments, Verizon Communications saw a 4.3% decline in the current share price of $ 58.75. Dividends are an important source of income for many shareholders, but the health of the business is crucial to maintaining the dividends. Therefore, we must always look at whether the dividend payments look sustainable and whether the company is growing.
See our latest analysis for Verizon Communications
If a company pays out more in dividends than it has earned, the dividend may become unsustainable – hardly an ideal situation. Verizon Communications paid out 56% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is even more important than profits for judging a dividend, so we need to see if the company generates enough cash to pay its dividend. It has paid out more than half (53%) of its free cash flow over the past 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 usually indicates that the dividend is sustainable, as long as earnings do not fall rapidly.
Click here to see the company’s payout ratio, plus analysis estimates of its future dividends.
Have earnings and dividends increased?
Businesses with strong growth prospects usually achieve the best dividend payers, as it is easier to grow dividends as earnings per share improve. Investors like dividends, so if earnings fall and dividends fall, expect a stock to sell heavily at the same time. Fortunately for readers, Verizon Communications’ earnings per share have grown by 13% per year over the past five years. Verizon Communications is paying out a little over half of its earnings, indicating that the company is finding a balance between reinvestment and dividend growth. This is a reasonable combination that could indicate further dividend increases in the future.
The most important way most investors will assess a company’s dividend outlook is by examining the historical rate of dividend growth. Verizon Communications has delivered an average of 2.8% dividend growth per year over the past ten years. Earnings per share grew much faster than dividends, possibly because Verizon Communications liked more of its profits to grow the business.
To sum it up
Does Verizon Communications have everything it needs to maintain its dividend payments? Higher earnings per share usually lead to higher dividends from dividend-paying shares over the long term. However, we would also like to note that Verizon Communications pays out more than half of its earnings and cash flow as profits, which may limit dividend growth if it slows earnings growth. In summary, while it has some positive features, we are not inclined to rush out today and buy Verizon Communications.
In light of this, although Verizon Communications has an attractive dividend, it is worth knowing the risks associated with this stock. To help with this, we discovered 2 Warning Signs for Verizon Communications of which you must take note before investing in their shares.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend stocks with a return of more than 2% and an upcoming dividend.
This article by Simply Wall St is general in nature. It is not a recommendation to buy or sell any shares, and does not take into account your objectives or your financial situation. We strive to provide you with long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price sensitive company announcements or quality material. Simply Wall St has no position in the said shares.
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