Verizon Earnings: Will VZ Stock Increase Its Dividend in 2019?
A Dividend Hike on the Horizon?
If you think dividend stocks are boring, think again. Over the past 12 months, dividend giant Verizon Communications Inc.‘s (NYSE:VZ) stock surged 23%, beating the Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite.
With a quarterly dividend rate of $0.6025 per share, Verizon stock offers investors a generous annual yield of 4.1%.
And now, the company is about the report earnings again. Let’s see what the latest VZ stock news could mean for dividend investors.
Stats for Verizon Communications Inc. Stock
This is earnings season. And for a big company like Verizon (it commands over $240.0 billion of market capitalization), that means there’s a set of expectations to beat.
In particular, Wall Street analysts expect Verizon to generate $32.2 billion in revenue in the first quarter of 2019, which would represent a 1.5% increase year-over-year. Earnings, on the other hand, are projected to come in at $1.17 per share for the quarter, which would be the same as in the year-ago period. (Source: “Verizon Communications Inc. (VZ),” Yahoo! Finance, last accessed April 11, 2019.)
- Earnings per share (EPS) estimate: $1.17
- Change from year-ago EPS: 0%
- Revenue estimate: $32.2 billion
- Change from year-ago revenue: 1.5%
- Earnings beaten in past four quarters: 4
In the last earnings conference call, Verizon Chief Financial Officer Matt Ellis said that they “expect low single-digit percentage growth in full-year 2019 consolidated revenue, compared to the prior year, driven by the continuation of wireless service revenue growth.” (Source: “Verizon Communications Inc. (VZ) CEO Hans Vestberg on Q4 2018 Results – Earnings Call Transcript,” Seeking Alpha, January 29, 2019.)
As for the bottom line, Ellis mentioned that the company’s 2019 EPS would be impacted by “revenue recognition headwind” and “a few nonoperational items, primarily a higher effective tax rate and increased interest expense due to placing additional spectrum into service.” As a result, management expects Verizon’s 2019 adjusted EPS to be “approximately the same” as last year’s.
Now, a 1.5% top-line increase and a flat bottom line might not seem like much. But at this stage in Verizon’s development, those numbers would actually be in line with management’s own projection.
Other than top- and bottom-line numbers, investors will also be watching for changes to the company’s wireless subscriber base this earnings season. You see, Verizon Wireless is hands down the company’s biggest segment, contributing more than 70% to its total revenue last year. Therefore, the performance of this segment could determine the direction of the company’s business.
In the previous reporting quarter, Verizon Wireless had 1.2 million retail postpaid net additions. If the company can keep growing its wireless subscriber base, it could cheer up investors.
Will Verizon Communications Inc. Increase Its Dividend in 2019?
Of course, the real question income investors want to ask is, “How would this quarter’s performance affect Verizon stocks’ dividend policy?”
Well, the first thing to note is that Verizon is one of the most solid dividend-payers in the stock market. The company is not on the list of “Dividend Aristocrats” yet, but if you look back, you’ll see that Verizon, along with its predecessor (the current company came into existence as a result of the merger between Bell Atlantic and GTE in 2000), has paid steady or increasing dividends for more than three decades. (Source: “Dividend History,” Verizon Communications Inc., last accessed April 11, 2019.)
In just the last decade alone, VZ stock’s quarterly dividend rate has increased by more than 30%.
Whenever you see a company with such a solid track record of returning cash to investors, it’s safe to assume that management would want to keep paying the dividend. And in the case of Verizon, the company should have plenty of resources to do so.
Last year, Verizon earned an adjusted net income of $4.71 per share while declaring total dividends of $2.385 per share. That translated to a payout ratio of just 50.6%. (Source: “Strong wireless customer growth and loyalty highlight Verizon’s 4Q results,” Verizon Communications Inc., January 29, 2019.)
In other words, after so many dividend hikes, the company was paying out just over half of its profits. That has created a wide margin of safety in its dividend policy.
Looking at free cash flow, things were equally solid. In 2018, Verizon generated $17.7 billion in free cash flow. Its dividend payments, on the other hand, totaled $9.8 billion for the year. So the company’s free cash flow provided 1.8 times coverage for its dividend. (Source: “4th Quarter 2018 Earnings Results,” Verizon Communications Inc., January 29, 2019.)
Fast-forward to this year, we see that Verizon has already declared a quarterly dividend of $0.6025 per share in March, which will be paid on May 1. If the company meets Wall Street’s expectations and generates an adjusted net income of $1.17 per share for the quarter, it would have earned more than enough profits to cover that payout.
Mind you, over the past 12 months, Verizon has beaten analysts’ EPS estimates in all four quarters.
As a matter of fact, with such a conservative payout ratio, Verizon should be able to not just sustain its dividend in 2019, but actually grow it. The company’s board of directors usually reviews the dividend policy in September, and has made annual increases for more than a decade. Coming this September, they’ll likely announce another dividend hike.
The Bottom Line on Verizon Communications Inc.
Compared to other stocks in the market, Verizon has performed quite well over the past 12 months. The company is scheduled to report first-quarter 2019 results on April 23 before market open. If the company beats analysts’ revenue and earnings expectations and also delivers solid subscriber growth, it would give investors a good reason to continue liking VZ stock.
As a dividend investor, you don’t need a soaring stock price to make a profit from a company. Verizon Communications Inc. pays reliable cash dividends and has plenty of resources to raise its payout later this year.