We recently compiled a list of the 10 Best High-Yield Dividend Stocks To Invest In. 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.
Dividend stocks have been investors’ favorites for a long time now. Over the years, these equities have performed better than the broader market. That said, when it comes to dividend investing, opinions often split down the middle between those seeking high yields and those favoring dividend growth. Though analysts recommend buying stocks with proven tracks of dividend growth, the appeal of high yields is hard to ignore. According to analysts, investors should steer clear of yield traps and focus on companies that consistently increase the value returned to shareholders. However, those advocating yields have plenty to say about the significance of dividend yields.
Also read: 12 Best Fortune 500 Dividend Stocks To Buy Right Now
One such example is a report published by Newton Investment Management. According to the report, high-yield dividend stocks outperformed the broader market during high inflationary periods between 1940 and 2021. The report also revealed that investment portfolios with high-yield dividend stocks outperformed those with low or no dividends in terms of value-weighted performance. High-yield portfolios surpassed low-yield ones by 199 basis points and zero-yield portfolios by 330 basis points. While this result provides useful information, it doesn’t offer details about the market conditions at the time, giving only a broad picture of high-yield stock performance. Analysts have paid close attention to how dividend stocks perform during market volatility, as the need for consistent income becomes more pronounced in such times. As a result, they suggest considering high-yield stocks only if these companies also have a strong history of dividend growth.
Dan Lefkovitz, a strategist for Morningstar Indexes, made the following comment about extremely high yields in the firm’s recent report:
“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield. Looking for the most yield-rich areas of the market can often lead you into troubled areas and dividend traps—companies that have a nice-looking yield that is ultimately unsustainable. You have to screen for dividend durability and reliability going forward.”
That said, high yields aren’t automatically a bad sign. In fact, dividend yield plays an important role when investing in dividend stocks, as it shows how much income an investor can expect relative to the stock’s price. However, to fully benefit from high yields, other factors like the company’s cash flow, payout ratio, and dividend growth must also be considered. If these metrics are strong, high-yield stocks can still be appealing. Some reports have pointed out the long-term advantages of high-yield stocks, noting that as dividend yields increase, returns generally rise, and risk decreases. Hartford Funds conducted research factoring in annualized standard deviation, which measures a portfolio’s return volatility, with a higher standard deviation indicating greater historical risk. The report found that from December 1969 to March 2024, high-dividend portfolios delivered an annualized return of 12.3%, mid-dividend portfolios 10.5%, and low-dividend portfolios 9.7%. The annualized standard deviations for these portfolios were 14.1%, 16%, and 20.8%, respectively.
The ideal situation would be when dividend growth and high yields go hand in hand, as many companies have demonstrated that this is achievable. With that being said, we will now take a look at some of the best dividend stocks with high yields to invest in.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and picked dividend stocks that have yields above 4%, as of January 20. The stocks are ranked in ascending order of hedge fund investors having stakes in 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 January 20: 6.99%
Verizon Communications Inc. (NYSE:VZ) ranks seventh on our list of the best dividend stocks. The American multinational telecommunications company plays a significant role in advancing the AI sector through its 5G wireless network, which provides the speed and security needed to bring AI to edge devices like laptops and smartphones. One example of the company’s involvement in AI edge computing is its collaboration with Nvidia to deliver AI capabilities to private networks, which are tailored wireless services for specific organizations. For example, Verizon is set to provide a private network for FIFA during the 2026 Men’s World Cup.
In the first nine months of 2024, Verizon Communications Inc. (NYSE:VZ) saw a 0.9% increase in consumer revenue compared to the prior year, while business revenue declined by 2.1%, leading to an overall revenue growth of 0.3%. The recovery in the consumer segment was driven by targeted incentives, marketing efforts, and the effective implementation of strategic initiatives, including recent acquisitions. Third Point Management made the following comment about VZ in its Q3 2024 investor letter:
“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) has been a solid dividend payer because of its stable cash position. In the first nine months of the year, the company reported an operating cash flow of $26.5 billion and a free cash flow of $14.5 billion. It has also been rewarding shareholders with growing dividends for the past 18 consecutive years. The company pays a quarterly dividend of $0.6775 per share and has a dividend yield of 6.99%, as of January 20.
Verizon Communications Inc. (NYSE:VZ) was a part of 57 hedge fund portfolios at the end of Q3 2024, according to Insider Monkey’s database. The stakes owned by these funds have a consolidated value of over $3.2 billion. Rajiv Jain’s GQG Partners was the company’s leading stakeholder in Q3.
Overall VZ ranks 7th on our list of the best high-yield dividend stocks to invest in. 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.