Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How Verizon's Dividend Yield Tops 5 Percent in June 2026
Transcript
- Lucas: So Verizon is up nearly 6 percent in the last five trading days, and it's now yielding about 5.9 percent. That's a lot of income for a stock that's basically a regulated utility with a cell phone business attached. Luna: And the ten-year Treasury has been coming down — it's at 4.45 percent as of last week. So suddenly Verizon's yield looks a lot more attractive than it did a month ago. Lucas: Right. The spread between Verizon's dividend yield and the ten-year is now about 145 basis points. Historically, when that spread widens past 100 basis points, income investors start paying attention. Luna: But Verizon's also had a rough few years. The stock is down something like 30 percent from its 2021 high. So the high yield is partly a function of a fallen stock price. Lucas: Exactly. The yield is elevated because the stock got cheap, not because the company raised the dividend aggressively. Verizon's last dividend increase was just 2 percent. Compare that to Coca-Cola, which is up about 4 percent in the last five days and yields around 3.1 percent. Coke's dividend growth is slower, but the stock price hasn't collapsed, so the yield is lower. Luna: And Procter & Gamble is in a similar boat — up 3 percent in five days, yield around 2.8 percent. So the question is: is Verizon a great income opportunity or a value trap? Lucas: That's the million-dollar question. Let's start with the cash flow. Verizon generated about 18 billion dollars in free cash flow last year. Its dividend cost about 11 billion. So the payout ratio on free cash flow is around 61 percent. That's actually pretty comfortable. Luna: Okay, so the dividend is covered. But the company also has a lot of debt from the C-band spectrum purchases. Net debt is around 150 billion. That's a big number. Lucas: It is. And interest rates have gone up, so their interest expense is higher. But their operating cash flow is still strong — over 35 billion last year. So they can service the debt. The risk is more about growth. They're not growing revenue much. Wireless service revenue was basically flat last quarter. Luna: So you've got a stock that's yielding nearly 6 percent, but the business isn't growing. That's a classic income stock profile. But the difference between a good one and a bad one is whether the dividend is sustainable. Lucas: And I think it is sustainable. The free cash flow payout ratio is 61 percent. That leaves room for deleveraging or capital investment. And management has been clear that the dividend is a priority. They've paid it for like 40 years straight. Luna: Yeah, but let's be real — the dividend growth is minimal. If you're an income investor who needs your payout to keep up with inflation, 2 percent annual increases aren't going to cut it. Lucas: That's fair. But if you're looking for current income, 5.9 percent is hard to beat without going into junk bonds or MLPs. And Verizon's dividend is qualified, so it's taxed at the lower capital gains rate, not ordinary income. Luna: Good point. And the recent price action suggests the market is starting to appreciate the yield again. The stock is up 6 percent in five days while the S&P 500 is basically flat. Lucas: I think part of it is the rotation into defensive sectors. The ten-year yield dropping from 4.55 to 4.45 makes bond proxies like utilities and telecoms more attractive. And Verizon is cheap on an earnings basis too — it's trading at about 10 times forward earnings. Luna: That's a low multiple. But low multiples can sometimes be a red flag. The market is pricing in no growth. Lucas: Right. And that's the key tension. You're getting paid 6 percent to wait. If the company can stabilize revenue and maybe grow a little, the stock could rerate. If not, you're just collecting the dividend and hoping the stock doesn't fall further. Luna: So what would you tell a listener who's considering adding Verizon to their dividend portfolio right now? Lucas: I'd say it depends on their goals. If they need high current income and are comfortable with a stock that might not appreciate much, Verizon is a solid choice. The dividend is safe. But if they're looking for dividend growth, they'd be better off with something like Coca-Cola or Procter & Gamble, or even a dividend growth ETF like SCHD. Luna: SCHD is up about 1.6 percent in the last five days and yields around 3.5 percent. So you're giving up 2.4 percent in yield for a portfolio that has more growth potential. Lucas: Exactly. And that's the trade-off every income investor has to make. By the way, a quick honest thing — it's conversations like this that remind me why we do this show. 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 episodes possible. Luna: Yeah, it's a small group, but it keeps us ad-free and independent. We really appreciate it. Lucas: So back to Verizon. One thing I want to highlight is the upcoming earnings report in July. That'll be the real test. If they show that free cash flow is holding up, the dividend is rock solid. But if they announce a big investment plan that pressures cash flow, the market might get nervous. Luna: What would you watch specifically in that report? Lucas: Three things. One: wireless postpaid phone net additions. If those are positive, it suggests they're holding market share. Two: free cash flow guidance. Three: any comments on the dividend policy. Management has been bullish on the dividend, but if they signal a change, that's a red flag. Luna: And on the other side, if they beat expectations, the stock could pop. A 6 percent yield plus some capital appreciation is a nice combination. Lucas: Right. And the options market is pricing in about a 4 percent move post-earnings. So there's some uncertainty. But for a long-term dividend investor, that volatility is just noise. The key is whether the business generates enough cash to keep paying you. Luna: And based on the numbers we looked at, it does. So Verizon might not be the most exciting stock, but for income, it's hard to argue with 6 percent. Lucas: Exactly. And in a world where the ten-year is yielding 4.45 percent, getting 5.9 percent from a company that's been paying dividends for decades is a pretty good deal. Just go in with your eyes open about the growth profile.