Is Verizon a good dividend stock to buy now?

stock Verizon Communications (VZ -4.67%) Monday, April 22nd started on a low note. Investors responded to the company’s first-quarter earnings report by lowering the stock price by about 3% in response to the poor results.

Verizon, an established telecommunications provider, isn’t growing very fast, but it’s stable. The company has been raising its dividend for 17 consecutive years and offers a dividend yield of an eye-popping 6.8% at recent prices.

Is Verizon a good dividend stock to buy now? Let’s compare why you should be excited about the future with some of the challenges your company is facing.

Reasons to Buy Verizon

Verizon is the largest member of the U.S. three-party telecommunications oligopoly. AT&T and T-Mobile USA Although it’s doing its best to catch up, Verizon is still the largest company by revenue.

Verizon has invested heavily to upgrade its wireless network to ultra-fast 5G technology, and it’s paying off. In the first quarter, the company reported that its total wireless services revenue increased 3.3% year-over-year. Verizon’s 5G network enables fixed wireless service, which had 3.4 million subscribers in March, more than 3 million of whom signed up in the past two years.

Changing your phone or broadband service is not like changing your laundry detergent. It’s a hassle most of us avoid, even when there are clear financial benefits. Steady subscription revenue has helped Verizon increase its dividend payout for 17 consecutive years.

The market doesn’t expect much growth from Verizon. After the company reported its first-quarter results, the stock fell to 8.5 times the midpoint of management’s range of adjusted earnings for the year.

Verizon isn’t growing fast, but patient investors who buy the stock while it’s trading at such a low earnings multiple can realize market-beating returns over the long term, as long as earnings move in the right direction.

Why You Should Avoid Verizon

Verizon stock could be a top performer if it can grow its earnings. Unfortunately, revenue has been declining in recent quarters. Last year, adjusted earnings fell 6.9% to $4.71 per share, and the downward trend probably isn’t over.

First quarter adjusted profit decreased 6.8% compared to the same period last year. The high end of the adjusted earnings range presented by management this year is still $0.01 less than what the company will earn in 2023.

It’s been over 10 years since Verizon was acquired. Vodafoneacquired a stake in Verizon Wireless for approximately $130 billion. As of the end of March, Verizon had net unsecured debt of $126 billion on its books. A massive debt pile that isn’t going away quickly drains much of Verizon’s cash flow and doesn’t leave much room for new investments or dividend increases.

Verizon has increased its annual dividend payout for 17 consecutive years, but has only increased its dividend 10.4% over the past five years. This is well below the rate of inflation, meaning investors who have held stocks for the long term are effectively receiving less now than they did in 2019.

In 2023, Verizon used 85% of the free cash flow it generated to meet its dividend obligations. This doesn’t leave you with a lot of cash to reduce your debt load or invest in the future. This also means the company can’t safely increase its payout faster than its overall revenue growth. If revenues continue to decline or stagnate, the company may need to reduce its payments.

Would you like to purchase now?

Younger investors looking for dividend payments that can grow quickly before they’re ready to retire will want to keep looking.

If you’re already retired and looking for a high-yield stock to increase your passive income stream, Verizon isn’t a bad choice. Although revenue isn’t growing, the relatively stable cash flow from mobile and broadband subscribers gives it a good chance of maintaining at least current levels of payouts over the long term.