We recently compiled a list of the 13 Highest Yielding Dividend Stocks in the Dow. In this article, we are going to take a look at where Verizon Communications Inc. (NYSE:VZ) stands against the other high yield dividend stocks.

Dow is one of the most well-known and influential stock market indices globally. It monitors the performance of 30 publicly traded companies on US stock exchanges, covering a broad array of industries. In the past 12 months, the index has surged by over 15%, compared with a nearly 25% return of the broader market.

Today, tech stocks have dominated the market, as seen by the NASDAQ’s nearly 30% gain over the past year, outperforming both the Dow and the broader market. However, the Dow’s underperformance in this period contrasts with its historical performance. A report from Barron’s highlighted that in 1978, 1980, and 1992, the Dow outpaced the Nasdaq by at least seven percentage points. The most notable period of Dow dominance occurred during the dot-com bubble’s collapse, with 12 instances of outperformance between 1999 and 2002.

When comparing the Dow to the broader market, the Dow has also shown strong results. According to S&P Global, from the past 30 years up until June 2021, the market returned 10.6%, while the Dow slightly exceeded that with an 11.16% return. This outperformance is largely due to the Dow’s stable, industry-leading companies that offer reliable dividends and steady yields.

Investing in high-yielding Dow Jones stocks can be an appealing strategy for those seeking reliable income and potentially higher returns. When selecting dividend stocks for their portfolios, investors often focus on dividend yields. However, it’s important to recognize that companies with high yields but lacking financial stability may be at risk of cutting dividends, especially amid global economic challenges and rising interest rates. Therefore, investment strategies that target high yields should also emphasize the financial strength and stability of the companies involved.

The Dow Jones Dividend 100 Index tracks the performance of 100 high-dividend stocks selected for their reliable dividend payments and strong financial fundamentals. In any income-focused strategy, investors typically aim for both yield and capital appreciation. The Dow Jones Dividend 100 Indices have consistently provided higher yields and comparable capital gains over the long term when compared to their benchmarks. According to S&P Dow Jones Indices, between June 30, 2001, and June 30, 2023, the total return of the index, assuming dividends were reinvested, averaged 11.7% annually, outperforming the Dow Jones US Broad Stock Market Index, which returned 10.2% during the same period.

When evaluating dividend yields, many investors adopt the ‘Dogs of the Dow’ strategy, which involves picking the ten Dow stocks with the highest dividend yields. While this strategy hasn’t performed well in recent years, it has historically outpaced its benchmark over the long term. Michael O’Higgins discovered that, over a 26-year period, a hypothetical portfolio of high-dividend Dow stocks achieved an annualized return of 17.9%. This performance outperformed the Dow Jones Industrial Average’s annualized return of 13% during the same period. According to the Wall Street Journal, the investment strategy outperformed the DJIA in 2022 for the first time since 2018. This happened as investors turned to safer options amidst the market’s unpredictable swings. Given this, we will take a look at some of the highest yielding dividend stocks in the Dow.

Our Methodology:

For this article, we examined the companies within the Dow Jones index and identified 13 stocks with the highest dividend yields as of January 16. It’s worth noting that the majority of companies in the Dow Jones are dividend payers.  We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Verizon Communications Inc. (NYSE:VZ)

Dividend Yield as of January 16: 7.12%

Verizon Communications Inc. (NYSE:VZ) is an American multinational telecommunication company. It is undergoing a major shift within the telecommunications sector. Sales from traditional sources like mobile devices are declining, as consumers prefer purchasing directly from brands. On the business side, the demand for networking equipment has dropped, largely due to the diminishing importance of old-fashioned landline phone services. This is happening in a highly competitive environment, where rivals are taking bold steps with pricing strategies. In the past 12 months, the stock has declined by nearly 2.5%.

That said, in the first nine months of 2024, Verizon Communications Inc. (NYSE:VZ)’s consumer revenue increased by 0.9% compared to the previous year, while business revenue fell by 2.1%, resulting in overall revenue growth of 0.3%. The consumer segment’s recovery was fueled by focused incentives and marketing campaigns, as well as the successful execution of its strategic initiatives, such as recent acquisitions. Third Point Management also highlighted the company’s acquisition in its Q3 2024 investor letter. Here is what the firm said:

“While some economic activity has been showing signs of slowing, the defensive composition of the current high yield market with a high mix of higher quality credit and short duration has let the rates tailwind overwhelm such concerns. The lowest quality sectors of the market have performed best, fueled by both soft/no landing expectations, as well as two positive events in the beleaguered telecom space. Telecom/cable have been poor performers year to date due to overhang from the growth of FWA (aka “wireless cable”) and increased fiber building, however the sector re-rated materially on two deals. Second, Verizon Communications Inc. (NYSE:VZ) announced a deal to acquire Frontier Communications (FYBR), a transaction which the fund benefited from by virtue of its investment in FYBR debt. This transaction, aimed at increasing’s VZ fiber footprint, has led to broad revaluation of fiber retail networks that we think is appropriate. While we continue to expect to see FWA rapidly erode non-upgraded cable and especially copper’s share of the low-end broadband market, the VZ deal underscores the value of the higher end footprint.”

Verizon Communications Inc. (NYSE:VZ) also attracts income investors thanks to its solid financial position, which supports its reputation as a dependable dividend payer. In the first nine months of FY24, the company generated $26.5 billion in operating cash flow and $14.5 billion in free cash flow. With 18 years of consecutive dividend hikes, Verizon remains focused on providing value to its shareholders, offering a quarterly dividend of $0.6775 per share. It offers a dividend yield of 7.12%, as of January 16.

At the end of Q3 2024, 57 funds held stakes in Verizon Communications Inc. (NYSE:VZ), compared with 67 in the previous quarter. These stakes have a consolidated value of more than $3.2 billion. With nearly 25 million shares, GQG Partners was the company’s largest stakeholder in Q3.

Overall VZ ranks 1st on our list of the highest yielding dividend stocks in the Dow. While we acknowledge the potential for VZ as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than VZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. 

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Disclosure: None. This article is originally published at Insider Monkey.