Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / Why Verizon's Dividend Fears Are Overblown Mid-2026
Transcript
- Lucas: So Verizon just dropped over six percent in five days. That puts the stock at roughly forty-four eighty-seven, and the dividend yield is now pushing past seven percent. For income investors, that kind of spike usually triggers one question — is this a buying opportunity or is the dividend about to get cut? Luna: And that fear is totally rational. When a yield jumps that fast, the market is pricing in risk. But is the fear actually justified here? Let's look at the numbers. Lucas: Right. Verizon's dividend costs them about eleven billion dollars a year. That's a big number, no question. But their free cash flow last year was roughly seventeen billion. So the payout ratio on a free cash flow basis is around sixty-five percent. That's not low, but it's not screaming danger either. Luna: And that's after all the capital spending on their network. So the dividend is covered by cash flow, not debt. That's a key distinction. Lucas: Exactly. And their net debt to EBITDA is around two point eight times. That's manageable for a utility-like business with stable revenue. Plus, they have a huge refinancing cushion — their average debt maturity is about twelve years, and most of that is fixed rate. Luna: So the high yield isn't signaling an imminent cut. But why did the stock drop so much? Lucas: Part of it is sector rotation. Telecom has been under pressure as bond yields stay elevated. The ten-year Treasury is at four point four six percent, and when you can get that from a risk-free asset, a seven percent yield from a company with debt and competitive challenges doesn't look as attractive on a risk-adjusted basis. Luna: But that logic cuts both ways. If bond yields eventually fall, that seven percent yield becomes extremely attractive. And with the Fed holding rates near three point six three percent, the yield curve is still fairly steep — the ten-year is about forty basis points above the two-year. Lucas: Right. So the selloff might be more about relative value than a fundamental deterioration. But let's talk about the real risk. The thing that actually could force a dividend cut is if free cash flow deteriorates significantly. And Verizon's free cash flow has been trending down — from about twenty-one billion in 2021 to seventeen billion last year. Luna: That's because of capital spending on 5G and fiber. But that spending should start to taper. Once the network build is mostly done, capex should decline and free cash flow could stabilize or even improve. Luna: Now Altria is an interesting comparison. MO also has a high yield — around eight percent, I think — and there's constant chatter about a dividend cut there because of declining cigarette volumes. But Altria's free cash flow coverage is actually stronger than Verizon's, because they don't have the same capex needs. Lucas: That's a great point. Altria's payout ratio on free cash flow is more like seventy-five percent, but they generate cash like crazy because they don't have to invest billions in infrastructure. The risk there is secular decline, not financial distress. Luna: So for Verizon, the risk is more about competition and pricing power. They're in a price war with T-Mobile, and they have a lot of debt. But the dividend is not on life support. Lucas: No, it's not. And I think that's the key takeaway. A seven percent yield on Verizon is not automatically a value trap. If you believe the business can generate stable cash flow for the next five to ten years, that yield is real. But you have to accept that the stock might stay volatile. Luna: And if you're reinvesting dividends, that volatility actually works in your favor. You buy more shares when the price is low. Lucas: Exactly. Let's look at a scenario. If you bought Verizon at forty-four eighty-seven and reinvested dividends, and the stock just stays flat for ten years, your total return would be roughly the yield — around seven percent annually. That beats the ten-year Treasury by over two hundred fifty basis points. Luna: But only if the dividend holds. So the real question is: what would have to happen for Verizon to cut? Lucas: Honestly, a severe recession that crushes their business and wireless subscriber base. Or a massive debt refinancing crisis. Neither seems imminent. Their next big maturity wall isn't until 2028, and they have plenty of cash on hand. Luna: So the selloff might be overdone. But that's easy to say in hindsight. The hard part is having the conviction to buy when everyone else is panicking. Lucas: Right. And that's where a systematic approach helps. If you're a dividend growth investor, you don't try to time the bottom. You just keep adding on weakness as long as the fundamentals hold. Luna: Quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these shows possible. Keeps us independent and ad-free. Lucas: Yeah, it's a small group but it makes a huge difference. We don't have to chase clicks or sponsors, we just focus on what we think is useful. So if our conversations have helped you think about a decision differently, that's where it comes from. Luna: Alright, back to Verizon. So bottom line — the dividend looks safe, but the stock might not rebound quickly. It's a classic income play, not a growth story. Lucas: And that's fine. Not every position needs to double. Sometimes a steady seven percent with a bit of upside is exactly what a portfolio needs, especially when bonds are yielding four and a half. Luna: So would you buy Verizon here? Lucas: I think it's a reasonable addition for an income-focused portfolio, but I'd keep it as a smaller position — maybe three to five percent — because of the sector risk. And I'd pair it with something like Johnson and Johnson, which is more defensive and has a lower yield but better growth. Luna: Diversification within income. Makes sense. Next time we'll look at another high-yield name that's under pressure — maybe some of the REITs or utilities that have been getting hit. Lucas: Sounds good. For now, keep your eyes on the cash flow, not just the yield.