Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / Why Verizon Lost 5 Percent While Utilities Gained
Transcript
- Lucas: Verizon lost five and a half percent in the last five trading days — and that's while the S&P 500 was up one percent and the Dow was up one percent as well. So it's not a market-wide selloff. It's a Verizon-specific story. Luna: That's a big move for a stock that's supposedly a stable dividend payer. What's behind it? Lucas: A few things. First, the broader narrative around telecom has shifted. Comcast and Charter Communications had some big moves earlier this week — Comcast was one of the stocks making the biggest moves premarket on Monday. But Verizon specifically is dealing with heavy debt, rising competition from fiber and fixed wireless, and the cost of spectrum. Luna: Right, and that spectrum auction from earlier this year — the 3.45 gigahertz band — Verizon spent billions. That's still hanging over the stock. Lucas: Exactly. And while the 10-year Treasury yield has come down a bit — it's at 4.38 percent as of June 26, down from 4.40 — that usually helps high-dividend stocks because they look more attractive when bonds yield less. But Verizon is still getting hammered. Luna: So the yield is now what, around six and a half percent? That's pretty juicy. But is it sustainable? Lucas: Six point five percent, roughly. And that's the big question. Verizon's payout ratio based on trailing earnings is over ninety percent. They're paying out almost all their profit as dividends. That leaves very little room for error if earnings slip. Luna: Meanwhile, Realty Income — ticker O — was up two and a half percent in the same five-day period. That's a REIT with a dividend yield around five and a half percent. And it's benefiting from the same rate environment. Lucas: That's the contrast. Realty Income's dividend is backed by long-term leases, mostly with investment-grade tenants. Verizon's dividend is backed by a business that's spending heavily on infrastructure and losing market share to T-Mobile and to cable companies offering mobile plans. Luna: And Verizon's debt load — they have over one hundred fifty billion dollars in total debt. That's not going away quickly. Lucas: No, it isn't. And the yield curve is flattening — the spread between the 10-year and the 2-year is now just 28 basis points, down from 31 a few days ago. A flatter curve tends to hurt companies that borrow short and lend long, or that have a lot of refinancing risk. Verizon has billions in debt coming due over the next five years. Luna: So you could argue the market is pricing in a dividend cut risk. Or at least a freeze. Lucas: That's what it looks like. Compare Verizon to a stock like Altria — MO — which was up three and a half percent in the same period. Altria also has a high yield, around eight percent, but they've been consistently raising their dividend, and their cash flow is more predictable. Luna: Altria has its own issues — declining cigarette volumes — but at least they've been buying back stock and managing debt. Verizon seems stuck. Lucas: Verizon actually sold some assets earlier this year — they offloaded some tower assets and data centers — but that's one-time cash. It doesn't fix the structural problem of a maturing business with high capital needs. Luna: So for a dividend investor, is Verizon a value trap? Or a contrarian buy? Lucas: I think it depends on your time horizon. If you're looking for a steady income stream and you believe Verizon can stabilize its subscriber losses and free cash flow, maybe you buy on weakness. But the risk is real. The dividend has been flat since 2021 — no growth. And with rates where they are, you can get a comparable yield in a bond with less volatility. Luna: The 10-year Treasury at 4.38 percent is almost risk-free by comparison. And Verizon's stock has a beta around 0.5, so it's less volatile than the market, but it's still a stock. Lucas: Right. And the 30-year Treasury is at 4.87 percent — so you can lock in a yield that's actually higher than Verizon's, with zero default risk. That puts pressure on stocks like Verizon. Luna: Which brings us back to the dividend growth versus high yield debate. A stock like Johnson & Johnson — up eight percent in the last week — has a lower yield, around three percent, but it's been raising its dividend for sixty years. Lucas: And that's what ultimately protects investors. A growing dividend gives you a rising income stream that can keep pace with inflation. A static high yield might look good on day one, but if the stock price drops and the dividend stays flat, your total return suffers. Luna: And if the dividend gets cut, you lose both income and capital. Lucas: Exactly. So for this episode, the takeaway is: when you see a stock like Verizon yielding six and a half percent, ask yourself why. The market is giving you a signal. Sometimes it's a bargain, but often it's a warning. Luna: It reminds me of something you said a while back — that a high yield is often a low-yield stock that's fallen. Lucas: That's exactly right. The yield goes up because the price goes down. And if the dividend isn't growing, you're not really getting compensated for the risk. Luna: Before we wrap, I want to mention something — a couple of listeners have asked how they can support the show. If our conversations have helped you think about a decision differently — maybe you avoided a dividend trap or rebalanced your portfolio — a small contribution genuinely makes a difference. Lucas: Yeah, it's not about big pledges. A couple of dollars a month covers the hosting costs and keeps the show ad-free. If you've gotten value from these episodes, you can head to buy me a coffee dot com slash fexingo. Luna: It's a simple way to keep this going. And now back to the yield curve — Lucas, you mentioned the flattening. How does that affect dividend stocks more broadly? Lucas: A flatter curve tends to favor defensive sectors — utilities, consumer staples, healthcare. Those are the stocks that have reliable cash flows and can maintain dividends without taking on too much refinancing risk. That's why you're seeing Realty Income and Johnson & Johnson do well while Verizon struggles. Luna: So the play might be to rotate out of high-yield telecom and into dividend growers with lower payout ratios. Lucas: That's the classic playbook. And in a flattening yield curve, it tends to work. The 2-year Treasury is at 4.07 percent, so short-term rates are still high, but the market is betting that the Fed will cut later this year. That could help rate-sensitive sectors like REITs and utilities. Luna: But if the curve steepens again — say, if long-term rates rise — then those sectors could get hit. Lucas: Right. So it's not a one-way bet. But for now, the data supports dividend growers over high-yield traps. And Verizon is the perfect case study. Luna: Alright, that's a good place to leave it. Thanks Lucas. Lucas: Thanks Luna. And to our listeners — keep checking those payout ratios.