Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How Altria and Verizon Dividends Expose Sector Risk in July 2026
Transcript
- Lucas: So it's the first week of July 2026, and the S&P 500 is up nearly 2% in five days. The Dow is at 52,900. Dividend ETFs like VYM and SCHD are up 0.8 and 0.9 percent respectively. Not bad. But if you owned Verizon this week, you lost 8.6 percent. Altria, down 1.5 percent. Two of the highest-yielding stocks in the index, taking a beating while the rest of the market rallied. Luna: And that's the paradox, right? Investors reach for yield in a 4.48 percent ten-year Treasury environment, but the stocks offering the highest yields are also the ones carrying the most risk. Lucas: Exactly. And look, if our money conversations have helped you think about a decision differently—maybe you've dodged a dividend cut or rethought your allocation—a couple of dollars a month is genuinely what keeps these going. Buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it really does make a difference. And speaking of dodging cuts—Verizon's payout ratio is north of 90 percent. That's not a safety margin, that's a tightrope. Lucas: Right. Let's look at the numbers. Verizon's dividend yield, even after this week's drop, is around 5.8 percent. But their free cash flow coverage of the dividend has been eroding. Capital spending on fiber and 5G is relentless, and they've taken on debt to fund it. When the ten-year yield pushes higher, the present value of those future cash flows gets hammered, and the stock reprices. Luna: And Altria? Their yield is pushing 8 percent now after the decline. But with ongoing regulatory headwinds and declining cigarette volumes, the dividend growth story is flat at best. Lucas: Altria's payout ratio is even higher than Verizon's—around 95 percent based on this year's earnings estimates. They've been diversifying into smokeless products, but that takes time and investment. Meanwhile, the bond market is offering 4.48 percent with zero equity risk. So the opportunity cost of holding a stretched dividend payer goes up. Luna: It's a classic value trap narrative. High yield can mask underlying deterioration. But not all high-yield stocks are in the same boat. Coke and Pepsi are yielding around 2.8 and 3 percent, but they're up this week. Lucas: Coke up 1.8 percent, Pepsi similarly. Their payout ratios are in the 60 to 70 percent range. They have pricing power, global brands, and consistent free cash flow. The market isn't questioning their ability to sustain or grow the dividend. So the divergence we're seeing isn't a blanket 'dividend stocks are bad' story—it's a sector and a quality story. Luna: And it's not just this week. Look back over the past couple of months. Verizon has been a persistent underperformer. The dividend yield has climbed as the price fell, which often signals the market pricing in a cut risk. Lucas: Right. And that's the key insight for dividend investors: a rising yield can be a warning sign, not an opportunity. If the yield is going up because the stock is falling faster than the dividend is growing, you have to ask why. In Verizon's case, the answer is a combination of high debt, heavy capex requirements, and a saturated market. Luna: So what's the play for someone building an income portfolio? Avoid the highest yields altogether? Lucas: I wouldn't say avoid entirely. But I'd say look for yields that are sustainable. A good rule of thumb: a payout ratio under 75 percent gives you a cushion. Also, look at free cash flow, not just earnings. And consider the sector's economic moat. Utilities, for example, have regulated returns and lower payout ratios—they've held up better this week. Luna: The utility ETF is actually up slightly. But the ten-year yield at 4.48 percent still competes with their yields. So even utilities have headwinds. Lucas: True. But the difference is that utilities can pass through higher costs more easily than a telecom or a tobacco company. And their payout ratios are generally lower—around 60 to 70 percent. So the dividend is safer. The market is rewarding that safety premium. Luna: So what's the bottom line for someone listening? Should they sell Verizon and Altria? Lucas: I can't give individual advice, but I can say that the data this week is telling you to re-examine your thesis. If you own Verizon, ask yourself: is the dividend safe for the next five years? If the answer is uncertain, maybe it's time to trim. If you're buying the dip, make sure you're buying because the fundamentals are intact, not just because the yield looks juicy. Luna: And if you want a set-it-and-forget-it approach, a diversified dividend ETF like SCHD has a yield around 3.3 percent, a payout ratio around 40 percent, and it's up this week. You're not getting the 8 percent yield, but you're also not getting the 8.6 percent weekly loss. Lucas: Exactly. The trade-off is real. And in this environment, with bond yields offering 4.48 percent risk-free, the market is going to punish any dividend stock that looks like it might stumble. The lesson from Verizon and Altria this week: yield without sustainability is just a trap.