VZ

Verizon Communications Inc.

51.64
USD
1.75%
51.64
USD
1.75%
45.55 56.85
52 weeks
52 weeks

Mkt Cap 213.80B

Shares Out 4.14B

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These 2 Dividends Defy Xi, Putin, And Powell, Yields Up To 6%

A lot is going on around us these days - The COVID lockdowns in China, the war between Russia and Ukraine, Putin's threats of nuclear action (and occasionally Kim Jong Un), the rising inflation, and the Federal Reserve's stance on the economy. The news can be stressfully negative and intentionally designed to be that way. A well-written article in BBC from 2014 explains the psychology behind bad news dominating the headlines if you are interested in learning more. The media tends to move from one bad-news issue to another. COVID-19 and its many variants sequentially took the spotlight for 18 months. We had brief coverage from Afghanistan in August last year. Then we had continuous coverage of the war in Ukraine. We are now hearing everyone and their mother's opinion about the next recession, and the next gripping topic isn't far away. The media needs to have you seated at the edge of your seat all year round. We don't know a lot about the future, but one thing is certain - if you start reacting to every piece of news, you will not be happy. "You only get one mind and one body. And it's got to last a lifetime. But if you don't take care of that mind and that body, they'll be a wreck 40 years later." - Warren Buffett It's no secret that dividend-paying stocks often come out ahead during market sell-offs. The image below shows us that U.S. dividend stocks have had significantly fewer bear markets in the past 150 years. Moreover, you can accelerate your performance during market weakness through dividend reinvestments. Time and again, we have seen that dividends from quality companies continue flowing through bull and bear markets. Warren Buffett doesn't fear market crashes and corrections. In fact, he is one of the strongest proponents of buying fear. He embraces them and takes the opportunity to invest heavily at a discount. Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble. -- Warren Buffett Mr. Market has harshly published certain quality dividend stocks due to short-term concerns and irrational fears about the economy. We embrace these lower prices by putting out a bucket to capture high yields from fundamentally strong companies. Two picks to get you started. Pick #1: VZ, Yield 5.3% The U.S. telecom market is concentrated with very few players, and Verizon Communications Inc. (VZ) is consistently rated high for the quality of its network. Quality is critical when we live in an increasingly connected world where everything is done online. Remember those old Nokia (NOK) phones that came preloaded with many addictive games? Today, even to set up an iPhone (AAPL), you need to be connected to the internet. Following the AT&T (T) - Warner Bros. Discovery (WBD) spin-off, VZ is the largest U.S. telecom company by market cap and 2021 revenues. The announcement of its Q1 earnings caused VZ's stock price to suffer its worst day of decline since the pandemic market crash of 2020. The market reaction seems excessive since the company continues to maintain industry-leading EBITDA margins. VZ reported 9.5% YoY growth in wireless revenues, a segment that represents ~55% of the Q1 top line, and wireless activations increased 11% YoY. These growth numbers put VZ in the stalwart (stable, reliable, with reasonable growth ahead) category defined by Peter Lynch. Even with FY2022 guidance, management now expects the service & other segments to be flat YoY instead of the initially projected 1-1.5% YoY growth. The guidance for every other financial metric remains unchanged. I reiterate that Mr. Market's reaction was unfounded, but thank him and his irrationality for these discounted prices. You see, when quality dividend stocks dive due to inadequate reasons, it is very easy for me to buy without having to wait for a market bottom. Moreover, I simply enable dividend reinvestments to boost my returns through price recovery. VZ's $0.64 quarterly dividend calculates to a 5.3% annualized yield at a modest 34% payout ratio (based on Q1 EPS of $1.35). The company has had a solid track-record of annual dividend increases for 15 years. Current prices are a massive bargain as they present the company's highest dividend yield in a decade. VZ ended the quarter with unsecured debt to adjusted EBITDA ratio of ~2.8x and is on track to reach its target long-term leverage ratio of 1.75-2.0x by 2025. Are you worried about interest rate increases? You don't have to. Verizon has an A-rated balance sheet, the best within the North American telecom industry, and reported an effective interest rate of 3.6% in 2021. Return of international travel, expansion, and growing adoption of 5G, and increasing digitization around us are some of the near, medium, and long-term catalysts for VZ's continued and growing influence in the U.S. market. We can expect increasing dividends from this stalwart in the years to come. Pick #2: OKE, Yield 6% The news these days is all about energy prices, supply shortages, and Russian oil and gas. But with ownership of midstream companies, you don't have to stay on your toes regarding geopolitical matters. ONEOK, Inc. (OKE) operates and maintains over 40,000 miles of pipelines that handle over 10% of U.S.-produced natural gas every day. The company maintains a significant position in the country's storage, transportation, and processing of Natural Gas and NGLs. The company's intrastate pipeline assets provide bi-directional connectivity between Mid-Continent and Permian Basin, Mexico markets, and Gulf Coast market through pipeline interconnects. (Source: First Quarter 2022 Results) Their interstate assets connect critical markets of the upper Midwest and Gulf Coast markets, Canadian supply areas, and key U.S. demand centers. The chart below shows OKE's sustained EBITDA growth in the past nine years, despite fluctuations in the prices of energy commodities. ~80% of the company's 2022 earnings are projected to be fee-based through long-term contracts. This is the type of stability we expect in a portfolio designed for regular, sustainable income. OKE projects a 7% YoY EBITDA increase in 2022 and is on track to achieve dividend coverage this year. Remember, 55% of 2022 distributions are projected to be non-taxable Return of Capital ("ROC"). OKE issues a 1099 to shareholders for simplified management of your taxes (no K-1). Midstream is a rewarding industry for income investors. Since 2000, OKE has maintained a 13% dividend CAGR. The $0.935/SHARE amounts to a 6% annualized yield. With continued debt paydown and bottom-line improvement, we expect dividend increases in the years to come. The U.S. energy industry is well-positioned as a significant source of the long-term domestic and global natural gas and NGL supply. Midstream plays a vital role in providing reliable transportation for these commodities. With OKE, you are seated at the tollbooth of the energy highway; this means recurring revenue for your portfolio for the foreseeable future, uncorrelated with the volatility of energy prices. Conclusion The Federal Reserve makes many comments during its meetings, but actions have more impact than words. We have only seen a 25 bps rate increase in March and a 50bps increase in May. The Fed's last projections in March projected a target rate of 1.75%-2.00%. The media and market participants have taken care of creating the necessary fear by projecting 2.75%+ by year-end. Will the Fed stick to the initial script? Will it become more hawkish as the market fears? Instead of panicking over what the Fed might or might not do and other geopolitical matters where you have almost no control or influence, why not do what Mr. Buffett has done since the 1940s with massive success? "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful" - Warren Buffett Thanks to tough words or actions by the likes of Xi Jinping, Vladimir Putin, Jerome Powell, and several other global figures, the stock market is plunging out of fear. It will recover, as it always has in the past. Successful investors understand that, and don't get angry, upset, or depressed when they see red. Instead, they salivate, they find high-quality companies trading at attractive valuations and buy. VZ and OKE are examples of two high-quality companies that have rewarded investors for many decades that are trading at very attractive valuations thanks to a bearish market. Let the market throw its fit, let it be red, your income is going up! If you want full access to our Model Portfolio and our current Top Picks, join us for a 2-week free trial at High Dividend Opportunities (*Free trial only valid for first-time subscribers). We are the largest income investor and retiree community on Seeking Alpha with over 5300 members actively working together to make amazing retirements happen. With over 40 individual picks yielding +8%, you can supercharge your retirement portfolio right away. We are offering a limited-time sale off your first year! Pay less than $1 a day for your first year of High Dividend Opportunities. This article was written by I am a former Investment and Commercial Banker with over 35 years experience in the field. I have been advising both individuals and institutional clients on high-yield investment strategies since 1991. As author of High Dividend Opportunities, the #1 service on Seeking Alpha for the 6th year in a row. Our unique Income Method fuels our portfolio and generates yields of +9% along side steady capital gains. We have generated 16% average annual returns for our members, so they see their portfolio's grow even while living off of their income! 4500+ members have joined us already, come and give our service a try! Join us for a 2-week free trial and get access to our model portfolio targeting 9-10% overall yield. No one needs to invest alone. In addition to being a former Certified Public Accountant ("CPA") from the State of Arizona (License # 8693-E), I hold a BS Degree from Indiana University, Bloomington, and a Masters degree from Thunderbird School of Global Management (Arizona). I am also a Certified Mortgage Advisor CEMAP, a UK certification. I currently serve as a CEO of Aiko Capital Ltd, an investment research company incorporated in the UK. My Research and Articles have been featured on Forbes, Yahoo Finance, TheStreet, Seeking Alpha, Investing.com, ETFdailynews, and on FXEmpire. The service is supported by a large team of seasoned income authors who specialize in all sub-sectors of the high-yield space to bring you the best available opportunities. By having 6 experts on your side who invest in our own recommendations, you can count on the best advice! In addition to myself, our experts include: 4) PendragonY We cover all aspects and sectors in the high yield space! For more information on “High Dividend Opportunities” please check out our landing page: High Dividend Opportunities ('HDO') is a service by Aiko Capital Ltd, a limited company - All rights are reserved. Disclosure: I/we have a beneficial long position in the shares of VZ, OKE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Treading Softly, Beyond Saving, PendragonY, Preferred Stock Trader, Philip Mause, and Hidden Opportunities all are supporting contributors for High Dividend Opportunities. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members.

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