Yahoo Finance Do These 3 Checks Before Buying Verizon Communications Inc. (NYSE:VZ) For Its Upcoming Dividend
It looks like Verizon Communications Inc. (NYSE:VZ) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 9th of October, you won't be eligible to receive this dividend, when it is paid on the 1st of November.
Verizon Communications's next dividend payment will be US$0.6 per share. Last year, in total, the company distributed US$2.4 to shareholders. Based on the last year's worth of payments, Verizon Communications has a trailing yield of 4.2% on the current stock price of $59.01. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Verizon Communications has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Verizon Communications
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Verizon Communications is paying out an acceptable 63% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 60% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Verizon Communications's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Verizon Communications has delivered 2.9% dividend growth per year on average over the past ten years.
Final Takeaway
Should investors buy Verizon Communications for the upcoming dividend? While earnings per share are flat, at least Verizon Communications has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Ever wonder what the future holds for Verizon Communications? See what the 23 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
