Verizon Communications (NYSE:VZ) Will Pay A Larger Dividend Than Last Year At $0.6775

The board of Verizon Communications Inc. (NYSE:VZ) has announced that the dividend on 1st of November will be increased to $0.6775, which will be 1.9% higher than last year's payment of $0.665 which covered the same period. Based on this payment, the dividend yield for the company will be 6.5%, which is fairly typical for the industry.

View our latest analysis for Verizon Communications

Verizon Communications' Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 100% of what it was earning and 80% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

The next year is set to see EPS grow by 85.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Verizon Communications Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $2.12 in 2014, and the most recent fiscal year payment was $2.66. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Verizon Communications' EPS has declined at around 6.9% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Verizon Communications' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 4 warning signs for Verizon Communications that investors should know about before committing capital to this stock. Is Verizon Communications not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.