Verizon Communications Inc. (NYSE:VZ) provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. This dividend achiever has paid dividends since 1984 and increased them for 11 years in a row. Verizon ranks in The Top 10 in the Sure Dividend system. Click here to see the other Top 10 Dividend Growth Stocks
The most recent dividend increase was in September 2015, when the Board of Directors approved a 2.70% increase in the quarterly dividend to 56.50 cents/share.
Over the past decade this dividend growth stock has delivered an annualized total return of 11.50% to its shareholders. Future returns will be dependent on growth in earnings and initial dividend yields obtained by shareholders.
The company has managed to deliver a 5.10% average increase in annual EPS over the past decade. The company’s annual earnings per share fluctuates wildly due to one-time accounting effects, such as pension adjustments for example. Verizon is expected to earn $3.96 per share in 2016 and $4.04 per share in 2017. In comparison, the company earned $4.37/share in 2015.
Verizon Communications Inc. (NYSE:VZ) is one of the two dominant telecom players in the US, the other one being AT&T. Both companies have the scale in number of customers to compete successfully, invest in their business and market their products, while keeping costs of servicing customers low and therefore generating excess cash flows. Both companies also have some pricing power over suppliers due their scale. Those excess cash flows are returned to shareholders through a generous dividend. In addition, the company has the reputation for America’s best coverage for wireless, which provides it with a high market share and customer loyalty. This has resulted in low churn rates, which in essence makes it easier to make money, since acquiring new customers is expensive. In addition, Verizon has valuable spectrum, which is of limited quantity in the US. The company participated in the 2015 Spectrum Auction, in order to gain more of this precious but limited resource.
At the end of 2015, Verizon Communications was included in the equity portfolios of 52 funds from the Insider Monkey database. In the current round of 13F filings, Robert B. Gillam’s McKinley Capital Management and Ray Carroll’s Breton Hill Capital reported ownership of 407,849 shares and 123,115 shares, as of the end of March, respectively.
The company has been able to grow through acquisitions over the past years, which is another way that it can bolster its future earnings per share.
On the other hand, the telecom services industry is extremely capital intensive. There are constant requirements to upgrade the network according to new standards, and to make sure that the quality is maintained at a good level for customers to enjoy.
The risk to Verizon is that the already cutthroat telecom market is shaken by a price war, and aggressive promotions to attract new customers, which could be bad for margins and profitability. Contrary to what many believe, the telecom market of today is highly competitive. It is extremely easy to switch carriers. However, Verizon and AT&T differentiate themselves by spending a lot of money on their networks.
The other thing to note is that Verizon competes with cable companies in its FIOS Internet & FIOS Video services.