We recently compiled a list of the 12 Best 5% Dividend Stocks To Buy According To Hedge Funds. In this article, we are going to take a look at where Verizon Communications Inc. (NYSE:VZ) stands against the other dividend stocks.
Dividend investors have often debated the balance between high yields and dividend growth. Analysts tend to favor companies with robust dividend growth, advising investors to avoid the yield traps. However, many studies suggest that high dividend yields aren’t necessarily a negative factor.
An example of this is a report from Newton Investment Management, which found that high-yield dividend stocks outperformed the broader market during periods of high inflation between 1940 and 2021. The report also showed that portfolios with high-yield dividend stocks performed better than those with low or no dividends, with high-yield portfolios exceeding low-yield ones by 199 basis points and zero-yield portfolios by 330 basis points. While the findings are insightful, the report lacks details on the specific market conditions during these periods, offering only a general overview of high-yield stock performance. Analysts have closely studied how dividend stocks fare during market volatility, given the heightened need for consistent income. As a result, they recommend considering high-yield stocks only if these companies also demonstrate a solid track record of dividend growth.
Also read: 10 Best Dividend Stocks Yielding at Least 7% According to Analysts
This is a common challenge for investors, who often believe that companies with strong dividend growth don’t offer high yields. However, this isn’t necessarily the case. Many companies provide above-average dividend yields while also maintaining solid records of dividend growth. In fact, dividend yield plays an important role in sustaining dividend growth. For example, the Dividend Aristocrats Index, which includes companies that have increased their dividends for 25 consecutive years, has managed to maintain a high yield without sacrificing growth. Over the 26 years ending in 2023, the index consistently outperformed its benchmark while maintaining yields between 2% and 2.9%. On average, the index yielded 2.5%, notably higher than the market average of 1.8%, as reported by S&P Dow Jones Indices.
Analysts typically recommend targeting dividend yields between 3% and 6%, as this range tends to offer the best balance of potential for both dividend growth and stock price appreciation. A report from Nuveen highlighted that global companies with moderate dividend yields (ranging from 0% to 3%) generally show stronger earnings growth, profitability, and profit margins compared to those with higher yields or no dividends at all. These factors also help reduce risk, particularly in times of market volatility.
Another study by Wellington Management highlighted the historical outperformance of high-yield stocks. The report analyzed dividend-paying stocks in the broader market index from 1930 to 2019 and grouped them into five categories based on their dividend yields. The top 20% of dividend payers performed the best, followed by the moderate dividend group, both surpassing the broader market in multiple periods. However, the lower dividend groups showed less consistent performance and generally underperformed the index. Given this, we will now take a look at some of the best dividend stocks with over 5% yield.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of the third quarter of 2024 and picked 12 dividend stocks that have yields above 5%, as of February 5. These companies have strong histories of paying dividends to shareholders. The stocks are ranked in ascending order of hedge funds’ sentiment toward them.
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).
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Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 57
Dividend Yield as of February 5: 6.76%
An American multinational telecommunications company, Verizon Communications Inc. (NYSE:VZ) has attracted investor interest over the years due to its consistent innovation and strong cash flow. In FY24, it reported an operating cash flow of $37 billion and a free cash flow of $19.8 billion, up from $18.7 billion the previous year. Analysts are optimistic about its future, particularly following its partnership with NVIDIA to develop an AI-driven enterprise solution that enhances AI applications on its secure 5G private networks with private Mobile Edge Computing. In addition, the company is exploring other AI-driven initiatives, such as network slicing and satellite connectivity, to generate new revenue and improve its competitive position.
Verizon Communications Inc. (NYSE:VZ) recently announced its Q4 2024 earnings, reporting revenue of $35.7 billion, a 1.6% increase compared to the same quarter last year. This growth was fueled by strong customer additions in both mobile wireless and internet services. In the mobile wireless sector, the company gained 568,000 net postpaid phone subscribers, up from 449,000 in the previous year’s quarter. Revenue for this segment rose 3.1% year-over-year to reach $20 billion, marking the 18th consecutive quarter of growth.
Verizon Communications Inc. (NYSE:VZ) has been rewarding shareholders with growing dividends for the past 18 years, which makes it one of the best dividend stocks on our list. Its quarterly dividend comes in at $0.6775 per share and has a dividend yield of 6.76%, as of February 5.
According to Insider Monkey’s database of Q3 2024, 57 hedge funds owned investments in Verizon Communications Inc. (NYSE:VZ), worth over $3.2 billion in total. Rajiv Jain’s GQG Partners was the company’s leading stakeholder in Q3.
Overall VZ ranks 2nd on our list of the best dividend stocks with over 5% yield. 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.
