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Verizon Communications Inc. (NYSE: VZ) is set to trade ex-dividend within 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’ upcoming dividend is US $ 0.63 per share, after the past 12 months, when the company has distributed a total of US $ 2.51 per share to shareholders. Based on the value of last year’s payouts, Verizon Communications has a trailing yield of 4.3% on the current share price of $ 58.75. Dividends are an important source of income for many shareholders, but the health of the company is crucial to sustaining these dividends. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.
See our latest review for Verizon Communications
If a company pays more in dividends than it earns, then the dividend could become unsustainable – this is not an ideal situation. Verizon Communications paid out 56% of its profits to investors last year, a normal payout level for most businesses. Yet cash flow is still more important than earnings in valuing 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 in the past year, which is within an average range for most businesses.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t fall precipitously.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to sell heavily at the same time. Luckily for readers, Verizon Communications’ earnings per share have grown 13% per year over the past five years. Verizon Communications pays just over half of its profits, suggesting the company is striking a balance between reinvesting in growth and paying dividends. This is a reasonable combination that could point to further dividend increases in the future.
Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Verizon Communications has averaged 2.8% dividend growth per year over the past 10 years. Earnings per share have grown much faster than dividends, likely because Verizon Communications is withholding more of its earnings to grow its business.
To summarize
Does Verizon Communications Have What It Takes To Maintain Dividend Payments? Higher earnings per share usually lead to higher dividends from dividend paying stocks over the long term. However, we also note that Verizon Communications pays more than half of its earnings and cash flow as earnings, which could limit dividend growth if earnings growth slows. In summary, while this has some positive characteristics, we are not inclined to race to buy Verizon Communications today.
In light of this, while Verizon Communications has an attractive dividend, it’s worth knowing the risks involved in this stock. To help you, we have discovered 2 warning signs for Verizon Communications which you should be aware of before investing in their stocks.
A common investment mistake is to buy the first stock of interest you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and a future dividend.
This Simply Wall St article is general in nature. It is not a recommendation to buy or sell stocks, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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