We recently compiled a list of the Dividend Contenders List: Top 15.In this article, we are going to take a look at where Verizon Communications Inc. (NYSE:VZ) stands against the other dividend contenders.
Dividend stocks have long been favored by investors for the income they generate, and they become even more appealing when dividends increase over time. Investors frequently seek out companies with a strong history of raising their dividends, as this growth boosts their income over the long term. Sustaining long-term dividend growth is challenging. For instance, "dividend aristocrats" are companies that have grown their dividends consistently for at least 25 years, and only about 68 US companies have been successful in achieving this. This demonstrates how difficult it is to attain such a high standard. However, many companies still manage to build shorter dividend growth histories, showcasing their resilience and potential to reach even greater milestones over time. Dividend contenders are well-regarded for having raised their dividends for 10 straight years, though they have yet to reach the 25-year mark needed to be considered long-term dividend growers.
Investors are drawn to dividend growth stocks, as these stocks have shown strong performance over the years. Data from Ned Davis Research covering the past 50 years revealed that high-quality companies that initiate and increase dividends have delivered higher returns and lower volatility than an equal-weighted index. By holding a portfolio of dividend growth stocks, investors can potentially achieve not only favorable risk-adjusted returns but also a more stable investment experience—one less impacted by the risks of market timing, which can reduce long-term gains. This strategy can help investors build wealth steadily over time, contributing to a more secure financial future.
Recently, tech stocks have surged to the forefront, and investors are capitalizing on this momentum, temporarily overshadowing dividend stocks. However, this shift doesn't imply a dim outlook for dividend stocks. Over the long term, dividend growth stocks have consistently demonstrated their strength and reliability. According to a report by Nuveen, companies that consistently grow or start paying dividends have delivered higher annualized returns with less volatility compared to other parts of the equity market. Although these dividend growth stocks don't outperform in every market condition, their solid risk-adjusted returns over extended periods make them a strong foundation for an equity portfolio.
Michael Clarfeld, manager of the Dividend Strategy portfolios at ClearBridge Investments, supports investing in dividend stocks. Clarfeld emphasizes the value of long-term compounding, viewing dividend stocks as essential for a well-rounded portfolio. He advocates for a dividend growth approach, focusing on companies capable of steadily increasing their dividends over time. Instead of chasing high yields for immediate gains, he advises investors to consider total return, which includes the reinvestment of dividends. In an interview with Morningstar, he noted that the average company in his portfolios has compounded dividends at around 9% annually, meaning an investor's income could potentially double every eight years. Clarfeld further said that dividend investing centers on evaluating a company’s cash flows and how they allocate payouts to investors.
In this dividend contenders list, we will take a look at companies that have raised their payouts for at least 10 consecutive years.
Our Methodology:
This list focuses on dividend contenders—companies known for raising their dividends consistently for 10 years but less than 25. From this group, we selected those with the highest dividend yields as of November 11, ranked from lowest to highest yield.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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Verizon Communications Inc. (NYSE:VZ) is a New York-based telecommunications company that offers services in communications, technology, information, and entertainment. Since launching its 5G network five years ago, the company has steadily expanded its reach. Backed by a strong spectrum portfolio and an extensive fiber optic network, it claims to offer the most reliable 5G service in the US, now covering more than 200 million people. In the past 12 months, the stock has surged by nearly 13%.
Verizon Communications Inc. (NYSE:VZ) has promising growth prospects ahead, especially with its $20 billion plan to acquire Frontier Communications, which would enhance its fiber network. Although the deal is still pending approval and would increase the company's debt, it could boost long-term growth. If interest rates decline, managing debt could become easier and less concerning for investors, particularly if it continues to deliver solid performance. Third Point Management also highlighted the company's acquisition in its Q3 2024 investor letter. Here is what the firm said:
“While some economic activity has been showing signs of slowing, the defensive composition of the current high yield market with a high mix of higher quality credit and short duration has let the rates tailwind overwhelm such concerns. The lowest quality sectors of the market have performed best, fueled by both soft/no landing expectations, as well as two positive events in the beleaguered telecom space. Telecom/cable have been poor performers year to date due to overhang from the growth of FWA (aka “wireless cable”) and increased fiber building, however the sector re-rated materially on two deals. Second, Verizon Communications Inc. (NYSE:VZ) announced a deal to acquire Frontier Communications (FYBR), a transaction which the fund benefited from by virtue of its investment in FYBR debt. This transaction, aimed at increasing’s VZ fiber footprint, has led to broad revaluation of fiber retail networks that we think is appropriate. While we continue to expect to see FWA rapidly erode non-upgraded cable and especially copper’s share of the low-end broadband market, the VZ deal underscores the value of the higher end footprint.”
In the third quarter of 2024, Verizon Communications Inc. (NYSE:VZ) reported revenue of $33.3 billion, which fell slightly by 0.02% from the same period last year. In the first nine months of the year, the company generated $26.5 billion in operating cash flow. Its free cash flow for the period came in at $14.5 billion.
On September 5, Verizon Communications Inc. (NYSE:VZ) announced a 1.9% hike in its quarterly dividend to $0.6775 per share. This marked the company's 18th consecutive year of dividend growth. The stock has a dividend yield of 6.7%, as recorded on November 11.
Overall VZ ranks 3rd on our list of the top dividend contenders. While we acknowledge the potential of VZ as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
