In This Article:
Telecom giant Verizon Communications (NYSE: VZ) offers investors one of the highest-yielding payouts on the S&P 500, at around 6.2%. At that high a yield, you would need to invest around $16,100 to be able to collect $1,000 in annual dividend income.
While that high level of yield is enticing, some investors may be concerned that such a high yield isn't safe. Share prices of Verizon are down 17% in the past three years, and there hasn't been much excitement in the business. Then there is also the fact that, recently, Verizon warned investors of worse-than-expected results to start the year. Could this news confirm that the stock is in trouble and that perhaps the dividend isn't all that safe?
Verizon warns of a tough start to 2025
Earlier this month, Verizon management issued a warning, stating that the first quarter of the year may not be as strong as it had hoped it would be. It noted that competition is affecting its performance, as are concerns about the broader U.S. economy. While Verizon pulled back on promotions at the start of the year, other telecom providers did not, effectively making its plans less competitive.
It also said that there haven't been as many phone upgrades as expected. This is partly to do with people being concerned about the economy, and there simply being insufficient reasons to upgrade. One example is Apple delaying the release of key artificial intelligence features for its Siri assistant until next year. A delayed rollout of a new iPhone model may be a big part of that. Even if there is no delay, iPhone users may not be feeling inclined to upgrade their phones just yet if promised new features get delayed.
There hasn't been an adjustment to the guidance, but investors have been selling shares of Verizon on these developments nonetheless.
For 2025, Verizon projects wireless service revenue to grow within a range of 2% to 2.8%. It's coming off an already underwhelming year in 2024, where its top line of $134.8 billion rose by less than 1%. With not much growth in its operations these days, this latest news does not give investors hope that things will improve anytime soon.
Can Verizon still sustain its dividend if business slows down?
The big question for investors is whether or not a slowdown in its operations may affect Verizon's dividend. To answer that, it's important to look at its payout ratio and free cash flow.
The first chart shows the payout ratio trend, and how much of earnings the telecom company has been paying out in dividends. At 64%, there's a decent buffer in place if the company's earnings numbers come under pressure.