On a down Tuesday for U.S. equities, incumbent telecom stock Verizon (NYSE: VZ) managed to land well in positive territory. On speculation that the company is about to raise its already considerable dividend, investors snapped up its shares. This pushed its stock price nearly 3% higher, on a day when the S&P 500 index was in the red with a more than 2% decline.
Dividend raise on the way, say analysts
That morning, an analyst team at white-shoe investment bank Morgan Stanley opined that Verizon is days away from declaring a dividend raise. The prognosticators said that such an announcement is likely to occur this Thursday, Sept. 5. Morgan Stanley anticipates a $0.05-per-share annual hike to the big telecom's quarterly common stock payout, putting the next quarterly distribution at nearly $0.68 per share.
If realized, such an increase would be in line with Verizon's recent dividend raises. While the company is a frequent lifter, consistently adding to its payout every year, its bumps tend to be small. On a quarterly basis, the most recent one, declared last September, was barely over $0.01 per share.
Although Verizon is an effective, very profitable telecom services provider and has good fundamentals, its shareholder distribution is clearly a major part of its appeal for many investors. It is a high-yield dividend at a rate of nearly 6.3%; this rate would remain unchanged with a $0.05 annual increase.
The company can afford it
Verizon's cash flow is thick and heavy, as it operates a business with millions of regularly paying subscribers. This means it has plenty of financial muscle helping it flex that high dividend. At the moment, its cash dividend payout ratio is under 80%, which indicates the distribution is well-funded and sustainable, barring any sudden catastrophe with the company.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
Why Verizon Stock Topped the Market on Tuesday was originally published by The Motley Fool