We recently compiled a list of the 10 Best Blue Chip Dividend Stocks To Buy. In this article, we are going to take a look at where Verizon Communications Inc. (NYSE:VZ) stands against the other blue chip dividend stocks.
When it comes to investing in stocks, investors often keep a close eye on the company’s financial health. Why? Because it directly impacts the potential returns on their investments. This is especially crucial for income investors, as solid financial health ensures regular dividend payments and steady dividend growth. In short, a company’s strong financial footing means it’s more likely to keep the cash flowing and the dividends climbing. Blue chip companies, especially those with over $100 billion in market cap, take the lead in this area. These firms are well-established, financially stable, and top players in their industries.
The Dow Jones Industrial Average is commonly regarded as an index of blue chip stocks. This widely watched stock market index includes 30 of the largest and most established publicly traded companies in the US. The index surged by over 4.7% since the start of 2024 and in the past 12 months, it gained 16.4%.
When comparing the performance of the broader market and the Dow Jones, both of which track large-cap U.S. companies, historical data reveals a high correlation between the two indices over time. However, there have been notable instances where their performances diverged significantly. According to a report from S&P Dow Jones Indices, the market substantially outperformed the Dow Jones over one- and three-year periods. Conversely, over the 30-year period leading up to 2019, the Dow Jones slightly outperformed the broader market. This indicates that although these indices often move together, short-term performance can vary, and specific market conditions and economic factors can influence which index performs better during different periods. The Dow Jones underperformed the broader market in 2023 by a wide margin.
While analysts frequently compare the performance of these two indices, it is important to note that the Dow represents only a small segment of the economy. In contrast, the broader market includes nearly 17 times as many companies. According to estimates from S&P Dow Jones Indices, more than $11.2 trillion investments were benchmarked to the broader market at the end of 2019. This is a staggering 350 times greater than the $32 billion benchmarked to the Dow. A key reason for the broader market’s outperformance compared to the Dow last year is that the market places more emphasis on the tech giants, which were the primary drivers of the wider market’s gains throughout the year.
Returning to the importance of blue chip companies, investors favor these firms because their strong financial health allows them to grow their dividends consistently. Dividend growth has remained a strong preference of investors over the years, prompting companies to increase their dividend payouts steadily. In this article, we will take a look at some of the best blue-chip dividend stocks.
Our Methodology:
For this list, we began by examining the current members of the Dow 30 that boasted a minimum market capitalization of $100 billion as of July 7. From this initial group, we specifically focused on companies that consistently pay dividends to their shareholders and have yields of at least 2%, as of July 7. These stocks were then ranked in ascending order of the number of hedge funds having stakes in them at the end of Q1 2024, as per Insider Monkey’s database. 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: 67
Verizon Communications Inc. (NYSE:VZ) is a New York-based telecommunications company that provides services related to technology, communications, information, and entertainment. On June 5, the company declared a quarterly dividend of $0.665 per share, which fell in line with its previous dividend. Overall, it has been growing its dividends for 17 consecutive years, which makes VZ one of the best dividend stocks on our list. As of July 7, the stock has a dividend yield of 6.45%.
Recently, Goldman Sachs initiated its coverage of Verizon Communications Inc. (NYSE:VZ) and maintained a Buy rating on the stock as a part of its broader coverage initiation on the US Telecom Services and Infrastructure sector. According to the firm, the U.S. telecom industry is undergoing a transformation, with operators now concentrating on their core businesses after a period of operating as conglomerates that led to shareholder capital losses. The firm believes that the company will achieve steady growth in revenue, EBITDA, and free cash flow over the next 18 months. The signs of this growth can already be seen in the company’s Q1 2024 earnings. It generated revenue of roughly $33 billion, which showed a slight increase of 0.21% from the same period last year. Moreover, its cash flow for the quarter also jumped from $2.3 billion to $2.7 billion.
In the most recent quarter, Verizon Communications Inc. (NYSE:VZ) also showed strength in its core wireless business. Total wireless revenues grew by 3.3% YoY to $19.5 billion and fixed wireless revenue also showed an increase of $197 million from the prior year period to $452 million. The company’s fixed wireless subscriber base is also growing quickly, and its network is widely regarded as the best in the industry. According to analysts, the company is all set to achieve a net increase in phone subscribers over the next two years.
One drawback to Verizon’s otherwise strong balance sheet is its significant debt load. Verizon Communications Inc. (NYSE:VZ) has amassed over $180 billion in total debt. With a payout ratio of 60%, the company allocates over half of its earnings to dividends, leaving limited funds available for debt repayment. Additionally, Verizon’s forward P/E ratio of 8.97 indicates that the stock is trading at nearly nine times its expected future earnings, suggesting the market has concerns about its financial flexibility given the high debt levels.
The number of hedge funds tracked by Insider Monkey owning stakes in Verizon Communications Inc. (NYSE:VZ) grew to 67 in Q1 2024, from 63 in the previous quarter. These stakes are collectively valued at over $2.1 billion. With nearly 9 million shares, Citadel Investment Group was the company’s leading stakeholder in Q1.
Overall VZ ranks 5th on our list of the best blue chip dividend stocks to buy. You can visit 10 Best Blue Chip Dividend Stocks To Buy to see the other blue chip dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of VZ as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than VZ but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
