Verizon’s cash isn’t for growth
Verizon Communications Inc. (NYSE:VZ)‘s earnings per share are slouching, but its dividend grew every year since 2006. Here’s some more dubious news: Verizon’s dividend has been greater than earnings per share for the last four years. In other words, Verizon pays out more to shareholders than it makes in a year! Last year, EPS was only $0.31, but Verizon Communications Inc. (NYSE:VZ) paid out $2.03 in dividends – that’s a payout ratio of 655%! So much for sustainable business practices.
Verizon spent a large part of last year’s cash balance paying out $18 billion in dividends. According to Morningstar, nearly half of Verizon’s debt comes due this year (thank goodness refinancing rates are low). Much of the remaining cash balance will go toward paying off long-term debt. Clearly Verizon Communications Inc. (NYSE:VZ) isn’t in the growth segment, either.
Oil companies just don’t have the energy
Exxon Mobil Corporation (NYSE:XOM) and rival BP plc (ADR) (NYSE:BP) are two more stocks you can count on for a steady dividend. Here are the two companies’ payout ratios for the last five years:
| 2012 | 2011 | 2010 | 2009 | 2008 | |
|---|---|---|---|---|---|
| ExxonMobil | 22.5% | 22.0% | 28.0% | 41.7% | 17.8% |
| BP | 54.6% | 20.8% | – | 64.0% | 49.4% |
Data from morningstar.com
Exxon Mobil Corporation (NYSE:XOM) looks like the other dividend-payers here, but the company is actually pursuing an opportunity to export LNG out of Papua New Guinea. This is a better growth prospect than most other dividend companies have. However, investors’ responses are moderate at best. Exxon Mobil Corporation (NYSE:XOM)’s stock price registered only single-digit gains year-to-date. That’s barely moving compared to the Dow’s recent 16%+ gains.
BP plc (ADR) (NYSE:BP) is still dealing with lawsuits from the 2010 oil spill. Plus, analysts estimate that the company made only $15 profit per barrel, well below competitors’ profits of more than $20 per barrel. BP plc (ADR) (NYSE:BP) will be searching for projects with higher margins, and I think that the share price will stay flat until the company raises margins.
Conclusion
Dividend stocks are great when industry is in a bad spot, but they’re no place to go for stock price growth. If you hope to keep up with an increasing stock market, it might be time to let go of the dividend stocks that can hold you back.
This article was written by Nathan Adamo and edited by Chris Marasco. Chris Marasco is Head Editor of ADifferentAngle. Neither has a position in any stocks mentioned. The Motley Fool recommends The Coca-Cola Company (NYSE:KO). The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy Corporation (NYSE:CHK).
The article 4 Dividend Stocks That Will Hold You Back originally appeared on Fool.com.
Marie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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