Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / Why Verizon Is Outpacing the Dividend Pack in Late May 2026
Transcript
- Lucas: Verizon has gained 3.4 percent in the last five trading days. In a week where the S&P 500 managed just 1 percent, that is a notable divergence. And it comes as the yield on the 30-year Treasury has ticked down to 5.10 percent from 5.11 percent — barely moving — yet income investors are clearly rotating into Verizon stock. Luna: So the move is not about the broader market being up. It is specifically about Verizon and maybe the sector. What is the catalyst? Lucas: I think it is a combination of yield and the yield curve. The 10-year Treasury is yielding 4.57 percent, essentially flat week over week. The 2-year has crept up to 4.08 percent, so the spread between the 10-year and 2-year has narrowed to 43 basis points, down from 49 just a few days ago. Luna: Flattening curve. That usually means the market expects slower growth or maybe rate cuts down the road. And when long-term bond yields stop climbing, dividend stocks suddenly look more attractive. Lucas: Exactly. Verizon's dividend yield right now is around 5.6 percent. That is more than a full percentage point above the 10-year Treasury. For income-focused investors, that spread is hard to ignore. And when bond yields are not moving higher, the relative appeal of a stable telecom dividend increases. Luna: But Verizon has had its challenges. The stock was down quite a bit last year on concerns about capex and competition. Is this move backed by fundamentals, or is it just yield chasing? Lucas: That is the right question. Let's look at free cash flow. Verizon generated about 18 billion dollars in free cash flow over the trailing twelve months. Their dividend costs roughly 11 billion annually. So the payout ratio on free cash flow is around 61 percent — that is comfortable. It gives them room to invest in their network and still pay the dividend. Luna: Sixty-one percent is sustainable. And they have a long history of paying dividends. But what about their debt? They have a lot of spectrum debt from the C-band auctions. Lucas: They do. Total debt is around 150 billion. But their interest coverage ratio is still above 3 times EBITDA. With the Fed Funds rate flat at 3.64 percent, their floating-rate exposure is not getting worse. And the market seems to be looking past that — they are focusing on the cash flow generation. Luna: So the flattening curve is the macro tailwind, and Verizon's own cash flow is the micro foundation. But is this a one-week blip or the start of a longer rotation? Lucas: I think it is part of a broader pattern. Look at the other dividend ETFs. VYM is up 1.3 percent, SCHD is up 2.5 percent. Verizon is at the high end of that range. But also, AT&T has been moving up too — though not as much. The sector is gaining favor. Luna: AT&T's dividend yield is even higher, around 6 percent. But their free cash flow coverage is tighter. Verizon seems to have the better quality profile. Lucas: Correct. AT&T's free cash flow after the WarnerMedia spinoff has improved, but still, their payout ratio is closer to 70 percent. Verizon has the edge on sustainability. And the market is rewarding that. Luna: Let's talk about the yield curve flattening a bit more. If the 10-year yield stays around 4.5 percent, dividend stocks become a reasonable alternative. But if yields rise again, that could reverse. Lucas: Right. The 30-year at 5.10 percent is still very attractive for bond buyers. But the fact that it is not rising — and even ticked down — suggests that the bond market thinks the Fed is done hiking. The Fed Funds rate has been at 3.64 since April. No movement. So the rate environment is stabilizing. Luna: That stability is exactly what dividend investors want to see. They don't need rates to fall — they just need them to stop going up. Lucas: Exactly. And when you combine that with the flattening curve, it signals that the market expects economic growth to slow. In a slower growth environment, defensive dividend stocks like telecoms tend to outperform. That is the narrative right now. Luna: What about Verizon's valuation? It is trading around 48 dollars. That is about 9 times forward earnings. That is cheap compared to the S&P 500 at 22 times. Lucas: The price to earnings ratio is low for a reason — low growth. Verizon's revenue has been essentially flat for a few years. But for an income investor, you are not buying for growth. You are buying for the yield. And at 9 times earnings with a 5.6 percent yield, it is a classic value income play. Luna: So the thesis is: stable rates, flattening curve, reasonable payout, cheap valuation. Is there any risk that the dividend gets cut? Lucas: I think the risk is low in the near term. The dividend has been increased annually for 16 years. They are not an aristocrat — they don't have 25 years of increases — but they have a clear commitment. The free cash flow covers it. The only real risk is if they need to make a huge spectrum investment that drains cash, but that seems priced in. Luna: One more thing — the article we saw about the government potentially taking a stake in companies. Does that affect telecoms? Lucas: Probably not directly. That seems more about industrial or strategic sectors. But it does add a layer of regulatory uncertainty. Verizon is heavily regulated already, so any additional government involvement could be a headwind. But the market does not seem worried this week. Luna: Alright. So for someone listening who wants to add a dividend stock today, is Verizon the pick? Or would you look elsewhere? Lucas: I would say Verizon is a solid pick for yield. But if you want more dividend growth, you might look at something like J&J — which is up 2.4 percent this week and has a 3.3 percent yield with better growth. Or Procter & Gamble at 1.4 percent yield. It depends on your goal. For pure income, Verizon is hard to beat right now. Luna: And you get that 3.4 percent weekly pop as a bonus. Lucas: Yeah, but don't chase the pop. The yield is still 5.6 percent, so even if the stock pulls back, the income is there. That is the whole point of dividend investing — you are paid to wait. Luna: Paid to wait. Good framing. So what should we watch for next week to see if this rotation continues? Lucas: Watch the 10-year yield. If it breaks below 4.5 percent, dividend stocks could get another leg up. Also, watch for any Fed commentary. The next FOMC meeting is in June. If they signal a pause, that is positive for income stocks. If they hint at a cut, bonds will rally and dividend stocks might lag initially. Luna: So the same old story — it is all about rates. Lucas: It always is, at the end of the day. But for now, Verizon is showing that a good yield in a stable rate environment can still move a stock. Worth keeping on the radar.