We recently compiled a list of the Early Retirement Portfolio: 10 Stocks to Live Off Dividends. In this article, we are going to take a look at where Verizon Communications Inc. (NYSE:VZ) stands against the other stocks.
As retirement approaches, ensuring financial stability becomes increasingly important for investors. Among the available investment options, consistent dividend payments are especially attractive due to their dependability and security. Dividends, which represent a portion of a company’s earnings paid out to shareholders, provide a reliable income stream.
Dividend stocks are well-suited for retirees because they also offer protection during challenging times. A report by Morningstar highlighted that dividend-stock funds were well-prepared to endure the tech stock crash from 2000 to 2002, as they had minimal exposure to the sector. During that period, the Vanguard Total Stock Market Index suffered a cumulative loss of nearly 44%, largely due to significant declines in its growth stocks, whereas dividend stock funds experienced only about a third of that loss.
Also read: 10 Best January Dividend Stocks To Buy
Due to their solid long-term performance in the past, dividend stocks are becoming a vital part of a well-rounded retirement portfolio for many investors. Strategically chosen dividend-paying stocks can offer stability during market declines and enhance gains during upswings by providing regular income that helps mitigate losses and amplify returns. In addition, they offer a hedge against inflation, which has become a growing concern due to rising costs of essentials like food and energy. Several top-performing companies have consistently increased their dividend payouts over decades. David Giroux, a portfolio manager at T. Rowe Price who oversees the firm’s capital appreciation strategy, shared insights on dividend stocks in an interview with Barron’s. Below are some of his remarks:
“To have a retirement portfolio that has a significant component of stocks with attractive dividends makes a tremendous amount of sense. If the average company in the market can grow its earnings at 7% to 8% a year, your dividends should be growing at a similar rate.”
Analysts point out that while income and growth are crucial for retirees to maintain financial stability during a potentially long retirement, this approach has its limitations and may not be suitable for everyone. They advise building a portfolio that is diversified across various sectors and includes companies with strong cash reserves to support stock buybacks. Dave King, a senior portfolio manager at Columbia Threadneedle Investments, stressed the importance of straightforward diversification in an interview with Barron’s. He recommended holding at least eight stocks from different sectors, suggesting that while diversification doesn’t need to be overly extensive, it should include more than just a few stocks—ideally more than five, with representation from each major sector. King also advised that when selecting stocks, investors should not rely too heavily on Wall Street research. Instead, they should prioritize fundamental, time-tested factors like a company’s credit rating or the reputation of its management, which can provide key insights into the stability of its dividend payments.
A report by Franklin Templeton highlighted that over the past decade, dividends for the broader market index have steadily risen, with an average annual increase of just over 7%. In strong market periods, dividends have enhanced total returns, while in tougher years like 2020 and 2022, when returns were flat or negative, dividends provided stability and helped strengthen portfolio resilience.
Our Methodology:
For this list, we used a screener to select dividend stocks that have shown at least 10 years of dividend growth and are spread across various industries, making them suitable for a retirement stock portfolio. From the initial selection, we chose ten stocks, each from a different industry, all with yields of at least 2%. The stocks are ranked in ascending order of their dividend yields, as of January 6. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
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)
Dividend Yield as of January 6: 6.79%
Verizon Communications Inc. (NYSE:VZ) is a New York-based telecommunications company that offers services in communications, technology, information, and entertainment. The company is appealing to income investors due to its strong financial foundation, reinforcing its status as a reliable dividend payer. In the first nine months of the year, the company generated $26.5 billion in operating cash flow and $14.5 billion in free cash flow. With 18 consecutive years of dividend increases, Verizon continues to prioritize delivering value to its shareholders. It offers a quarterly dividend of $0.6775 per share and has a dividend yield of 6.79%, as recorded on January 6.
In 2023, Verizon Communications Inc. (NYSE:VZ) faced difficulties in its consumer business, with wireless subscriber growth lagging behind its competitors. Its smaller consumer wireline segment, which provides broadband services, also saw limited growth, primarily due to a competitive promotional environment. In addition, macroeconomic challenges affected the growth of its business wireless and wireline sectors, as companies reduced spending on telecom upgrades. However, in the first nine months of 2024, the company’s consumer revenue grew by 0.9% year over year, while business revenue dropped by 2.1%, leading to overall revenue growth of 0.3%. The recovery in the consumer segment was driven by targeted incentives and marketing efforts, alongside the completion of its strategic initiatives, including recent acquisitions.
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.”
At the end of Q3 2024, 57 funds held stakes in Verizon Communications Inc. (NYSE:VZ), compared with 67 in the previous quarter. These stakes have a consolidated value of more than $3.2 billion. With nearly 25 million shares, GQG Partners was the company’s largest stakeholder in Q3.
Overall VZ ranks 1st on our list of the best dividend stocks for an early retirement portfolio. 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 time frame. 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.
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Disclosure: None. This article is originally published at Insider Monkey.