Is Verizon Communications a Good Dividend Stock for Inflation?
Is Verizon Communications Inc. one of the best stocks to buy during these inflationary times? Let's take a look at the pros and cons.
When hunting for the best dividend stocks for inflation, does Verizon Communications Inc. (NYSE: VZ) soar to the top? The technology and communications behemoth might be one of the first places you look when you're trying to beat inflation.
Gushing gasoline and food prices and an all-over increase in items have left consumers feeling the big, bad wolf of inflation's effects. The all items index increased 9.1% for the 12 months ending June, the largest 12-month increase since November 1981, the Bureau of Labor Statistics reported. The energy index rose 41.6% over the past year, the largest 12-month increase since April 1980. The food index increased 10.4%, the largest 12-month increase since February 1981.
Verizon Communications Inc. has been struggling of late in terms of its share price, but is it related to inflation or is there more to the story? Let's take a closer look at what you need to know about Verizon Communications, including the reasons you may or may not want to invest in the stock during these months of surging prices.
What You Need to Know About Verizon
Verizon Communications Inc., headquartered in New York City and formerly known as the Bell Atlantic Corporation (incorporated in 1983), switched its name to Verizon Communications Inc. on June 30, 2000. Over the past 22 years, the company has become one of the world's technology and communications leaders.
The company offers communications, technology, information, and entertainment products and services voice, data and video services and solutions on its networks and platforms.
The company offers services and products such as:
- Postpaid and prepaid service plans
- Internet access on notebook computers and tablets
- Wireless equipment
- Wireless-enabled internet devices
- Residential fixed connectivity solutions
- Network access to mobile virtual network operators
- Network connectivity products
- Internet protocol-based voice and video services
- Unified communications and collaboration tools
- Customer contact center solutions
- Management and data security services
- Domestic and global voice and data solutions
- Contact center solutions
- Private line and data access networks
- Internet of Things products and services
In Q2 of 2022, Verizon Communications reported $1.24 in earnings per share (EPS), compared to $1.40 last year at the same time. The company also reported revenue of $33.8 billion, which was actually flat from 2021. Net income of $5.3 billion showed a decrease of 10.7% from Q2 2021, and adjusted EBITDA was $11.9 billion, down 2.6% year over year.
Why You Might Choose Verizon Communications Inc. During Inflation
Why gravitate toward Verizon Communications Inc. during these inflationary periods? Let's take a look at some reasons why you might want to do so:
- Dividend growth: Verizon Communications has maintained 18 years of consistent dividend growth and the dividend yield of 5.68%. The dividend payout ratio is 51.30% with an annual dividend of $2.56. Income-oriented investors can feel comfortable with these payouts.
- Still the king of 5G: We live in the land of 5G now — it has become a requirement for just about anyone who uses a device, individuals and businesses included. 4G has gone the way of the dodo bird, and Verizon represents the face of this technology. You can't ignore the impact of 5G Ultra Wideband for fast speeds and low latency when operating several devices at once. Verizon has pioneered it and because of that, isn't likely to suffer later on.
- Low price offers an opportunity to buy: If the stock market is down, buy, buy, buy, right? Many investors shy away from buying during times of turbulence, but that can be a big mistake, particularly when you can purchase great stocks on sale. Low expectations can lead to pleasant surprises later on, including a Verizon stock rally.
Warning Signs of Investing in Verizon Communications
Why might you want to run away from investing in Verizon Communications? Let's take a look at a few good reasons:
- Trending downward: Verizon Communications shares have continually gone down since the end of 2020, and amid rising interest rates and inflation, its dividend doesn't have quite the same amount of sparkle as it did before. It's possible that now that it has come and gone, 5G may not mean strong growth for Verizon Communications stock soon. In fact, due to this very reason, some analysts have projected sluggish revenue growth for the coming years.
- Debt load: One of the company's major weaknesses is its major debt load due to the building out 5G. Verizon carried about $101 billion in long-term debt in 2019, $123 billion at the end of 2020 and by the end of December 2021, Verizon had $143.4 billion in long-term debt ($7.4 billion in short-term debt) offset slightly by $2.9 billion in cash and cash equivalents. However, the company's credit rates as BBB+/stable.
- Stiff competition: Verizon can't get the monkey off its back, what with 5G wireless market competition. In Q1, Verizon lost 36,000 postpaid phone subscribers whereas AT&T reported a net gain of subscribers.
Learn more: Are Dividend Stocks Worth It?
Should You Buy Verizon Communications Inc.?
It's true that investors have suffered at the hands of Verizon Communications Inc. recently. However, many analysts will tell you that there's nothing fundamentally wrong with the company's operations, citing slump territory due to inflation. Just as many will tell you that if you're looking for a stock with great yield at a lower price, you're looking at a rock-solid investment option. Investing smartly to combat the effects of inflation is always a good idea. Dividend stocks may offer a great passive approach. (All you have to do is rake in the dividends that you receive.)
Ultimately, you're looking at a slot-machine "cha-ching" sound every time Verizon's ex-date rolls around. The company's latest lackluster results likely won't change the fact that you'll find a dividend reward waiting for you on a quarterly basis.
Learn more: How to Build a Large Dividend Stock Portfolio
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