Juicy Dividend Attracts Investors to Verizon Communications

After cutting its forecast twice this year, the shares of Verizon Communications (VZ) have continued to fall and posted a 7-year low last Friday. However, fund managers are attracted to Verizon’s dividend yield and its history of raising dividend payouts.  Verizon Communications may look appealing with the overall slump in technology and telecom stocks this year amid U.S. economic concerns.

Verizon Communications, the largest U.S. wireless carrier, has fallen -21% this year to a 7-year low last Friday.  Rival AT&T (T) is down only -7.4% this year, and T-Mobile (TMUS) is up +22%.  Verizon’s consistent dividend sets it apart from its rivals.  Verizon has raised its dividend payout for 15 consecutive years, announcing the increase each time during the first week of September. Verizon stock carries a dividend yield of 6.2%.  AT&T’s dividend yield is a bit higher at 6.5%, but AT&T has cut its dividend by nearly half this year.  T-Mobile doesn’t pay a dividend.

Value and dividend-oriented fund managers may be attracted to Verizon’s dividend yield.  Investment funds run by Capital Group, Federated Hermes, Invesco Ltd, CQG Partners, and other firms have accumulated millions of Verizon shares in the three months ended June 30, according to regulatory filings. However, shares of Verizon have fallen since then after the company in July lowered its forecast for the second straight quarter.

Contrarian investors have optimism that Wall Street analysts are nearing maximum bearishness on Verizon’s stock.  Fewer than 25% of the analysts covering Verizon have a buy rating on the stock. Verizon trades at 7.9 times estimated earnings, its cheapest valuation in two decades, making it a bargain for stock pickers looking for a healthy dividend yield.

Tigress Financial Partners said the telecom industry is capital intensive, and “Verizon’s strong balance sheet and cash flow enable ongoing investment in spectrum expansion and growth opportunities.”  However, Janus Henderson said, "while Verizon’s valuations are cheap, they are not demanding.  We worry that the valuations are value traps and will only get cheaper.”

• Rising T-Note Yields Weigh on Stocks
• Stocks Rebound as Cheaper Valuations Attract Bargain Hunters
• Does the Return to Normal Justify Unusual Options Activity for Match (MTCH)?
• Bull Call Spread Screener Results For September 6th