Verizon Communications, a leading telecommunications company, is currently offering a high dividend yield of 6.6%, which has attracted attention from investors. However, concerns have arisen regarding the sustainability of this payout, given the recent decline in the company’s stock price and rising interest rates. To assess the viability of Verizon’s dividend, it is crucial to examine the company’s free cash flow and overall financial health.
Verizon’s second-quarter earnings report revealed an improvement in its free cash flow compared to the same period last year. With $8.5 billion in free cash flow for the first half of 2024, the company appears to have sufficient funds to cover its dividend payments. On average, Verizon pays around $2.8 billion in dividends per quarter, or $5.6 billion over a six-month period. This suggests that the current dividend payout represents approximately 66% of the company’s free cash flow, indicating a sustainable level.
Notably, there were no warning signs in Verizon’s earnings report that would suggest the dividend is in jeopardy. The company continues to experience steady growth, with wireless service revenue expected to increase between 2% and 3.5% for the year. Verizon’s earnings per share for the second quarter remained relatively stable at $1.09, comparable to the previous year’s figure of $1.10. Such stability is reassuring for investors seeking a reliable dividend investment.
Although Verizon’s payout ratio appears high, exceeding 100% of earnings, this is primarily due to a non-cash $5.8 billion writedown incurred by the company in a previous quarter related to its wireline business. Consequently, this accounting adjustment should not be interpreted as a threat to the dividend’s sustainability.
Considering Verizon’s stock is currently trading at a low valuation of just 9 times its estimated future earnings, based on analyst expectations, it presents an attractive investment opportunity. As interest rates decrease and dividend stocks become more appealing due to their high yields, Verizon could regain popularity among investors. Therefore, it may be prudent for investors to consider purchasing the stock now to secure a lower price.