VZ

Verizon Communications Inc.

39.58
USD
1.07%
39.58
USD
1.07%
37.95 55.51
52 weeks
52 weeks

Mkt Cap 162.13B

Shares Out 4.14B

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3 Passive Income Generators Down Between 11% and 34% to Buy Hand Over Fist

Finding discounts among dividend-growing stocks can be an incredible way to build a fortune. Not only does a lower price on a dividend-paying stock represent a cheaper valuation, but it also implies a higher dividend yield. Consider the businesses three Motley Fool contributors recommend: Verizon Communications (NYSE: VZ), Pool Corp. (NASDAQ: POOL), and Tractor Supply (NASDAQ: TSCO). Currently, each stock's forward dividend yield (projected dividend payments for the next year) trades well above its four-year dividend yield average -- potentially hinting at discounted passive income potential. Let's take a deeper look at the trio. Grab a massive yield on this telecom giant Bradley Guichard (Verizon): Verizon stock has fallen out of favor lately -- and rightly so. The company has struggled to meaningfully grow revenue over several quarters. The lack of growth has led to an 11% drop year to date. But here's the silver lining: The bad news may already be priced in, and the yield is now 5.7%. Verizon posted anemic growth in the second quarter of 2022 -- just 9% year over year in a period of rising prices and expenses. The operating margin fell 4% year over year but still came in at a healthy 27.9%. Verizon also continues to post a margin of earnings before interest, taxes, depreciation, and amortization (EBITDA) over 40%. The results are far from stellar considering the company's history but nowhere near a disaster. There is no doubt that low consumer sentiment and inflation are hurting Verizon right now. But these are temporary obstacles the company can work through. Without these challenges, investors wouldn't be able to snag Verizon's highest dividend yield in over a decade. Verizon's growth plan includes expanding 5G coverage to 175 million people by the end of the year and pushing to increase its subscriber base for broadband. The company is investing heavily in capital expenditures now and expects this to slow by 2024, leaving more cash for dividends and stock buybacks. Speaking of dividends, Verizon has faithfully paid one for 21 years and raised it annually for the past 17 years. The company has been through recessions and other economic upheavals along the way but still sent shareholders those quarterly checks. Verizon has generated $7.2 billion in free cash flow and paid $5.4 billion in dividends in the first half of 2022, so the dividend appears safe, especially given its predictable results. Verizon is facing challenges that have stunted growth and caused investors to run. The result is a stock with a positive risk-reward setup and a very enticing yield. This could make for a timely buy for patient passive income investors. Passive income potential and recurring sales with Pool Corp. Josh Kohn-Lindquist (Pool Corp.): Down 34% in 2022, appropriately named swimming pool supplies distributor Pool Corp. has been unable to impress investors, despite posting 15% sales growth in the second quarter of 2022. Making this solid revenue growth even more impressive is that it was on top of 40% growth year over year in Q2 2021. Best yet for investors, this success on the top line flowed through to Pool Corp.'s profits as its earnings per share (EPS) grew at an even faster clip of 20% year over year in its most recent quarter. Thanks to this confounding combination of impressive earnings and declining share price, the company trades at a price-to-earnings (P/E) ratio lower than at any point in the last decade. Now sporting an attractive 5% earnings yield -- which is the inverse of its P/E ratio -- Pool Corp. offers immense passive income potential to investors, as it could quadruple its dividend payments and still have excess earnings remaining. So how does Pool Corp. generate this seemingly outsize profitability? The simplest answer is two of investors' favorite words: recurring revenue. Despite new pool construction remaining important to the company's long-term operations, 58% of its sales come from recurring and non-discretionary maintenance supplies and repair products. On top of this 58%, an additional 22% of sales is derived from the replacement and refurbishment of pools, which the company considers "somewhat discretionary." The combination of these revenue streams means that 80% of Pool Corp.'s sales are recurring. This recurring revenue leaves the company well insulated from the fickle nature of the housing market and helps explain how Pool Corp. has delivered annualized shareholder returns of nearly 26% over the last decade. In its guidance for 2022, management expects EPS to grow by 20% to 25%, with its longer-term growth outlook being in the mid-teens for the foreseeable future. With this EPS growth rate registering higher figures than Pool Corp.'s P/E of 20, it could represent growth at a reasonable price. Thanks to this relatively cheap growth outlook, Pool Corp.'s 21% annualized dividend growth rate over the last five years and its surprisingly steady recurring revenue, investors should consider this unique stock for its promising passive income potential. Meeting the needs of the rural lifestyle Jeff Santoro (Tractor Supply Co.): Over the long term, Tractor Supply Co. has been a market-beating investment. Over the past one, three, and five years, Tractor Supply has outpaced the total gain of the S&P 500 by 9%, 35%, and 187%, respectively. However, the story in 2022 has been less rosy. Year to date, Tractor Supply is down 19%, compared to the S&P 500's loss of 12%. The short-term stock movement belies the strength of this business and presents a buying opportunity for investors. Tractor Supply has shown consistent revenue growth, profitability, and cash generation and is navigating the inflationary environment with only a minor impact to its margins. Add in the dividend, and the investment picture becomes even more compelling. Tractor Supply, which is a retailer that focuses on customers living the "rural lifestyle," recently reported second-quarter 2022 results that demonstrated the strength of the business. Revenue for the quarter was $3.9 billion, a year-over-year increase of 8.4%. Comparable store sales were up 5.5%, which included average ticket growth of 7.5%. These sales were driven by everyday needs such as consumable products and animal feed. This should be of interest to investors as it shows that even in uncertain economic times, customers still have a need to visit Tractor Supply stores to buy necessities. Importantly, Tractor Supply posted positive profitability results as well. Gross profit increased 7.7%, and even though the gross margin decreased by 24 basis points, that's a small impact considering the inflationary pressures the company faced. Tractor Supply's price-management actions and other initiatives were able to prevent the gross margin decline from being larger. Operating expenses also trended in a positive direction. Selling, general, and administrative (SG&A) expenses were 22.1% of the company's revenue, an improvement from 22.3% in the year-ago quarter. This led to an operating income increase of 7% and an earnings per share (EPS) jump of 10.7%. Considering the economic headwinds, these are impressive results. Lastly, Tractor Supply uses its free cash flow generation to reward shareholders. In Q2, the company repurchased $188 million of its stock and paid $103 million in dividends. Tractor Supply's dividend yield is currently 1.5%, only slightly lower than the S&P 500's 1.7%. 10 stocks we like better than Verizon Communications When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Verizon Communications wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of July 27, 2022 Bradley Guichard has positions in Verizon Communications and has the following options: short September 2022 $47 calls on Verizon Communications. Jeff Santoro has no position in any of the stocks mentioned. Josh Kohn-Lindquist has positions in Pool and Tractor Supply. The Motley Fool recommends Pool, Tractor Supply, and Verizon Communications. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Today’s Big Picture Asia-Pacific equity indexes ended today’s session down across the board. India’s Sensex ended the day essentially flat, down 0.06%, China’s Shanghai Composite and Australia’s ASX All Ordinaries declined 0.54% and 0.55%, respectively while Japan’s Nikkei fell 0.65%, Taiwan’s TAIEX dropped 0.74% and South Korea’s KOSPI declined 0.90%. Hong Kong’s Hang Seng led the way, down 1.96% on a broad selloff led by Health Technology and Health Services names while Transportation and Communications sectors provided the only relief. By mid-day trading, major European equity indices are down across the board and U.S. futures point to a positive open later this morning. At 8:30 AM ET, the much anticipated July Consumer Price Index (CPI) report was released: The headline figure for the month was expected to fall to 8.7% from June’s blistering 9.1% reading with core CPI that excludes food and energy ticking higher to 6.1% in July vs. 6.0% the prior month. The actual numbers show that inflation hit 8.5%, and core inflation was 5.9%. With the national average retail price for a gallon of gas falling through late June and July from its June 14 high of $5.016 per gallon per data from AAA, forecasters had expected the month over month decline in the headline CPI for July. The July Employment Report also showed wage inflation ran hotter than expected during the month. Let’s also keep in mind that we will be facing a “wash, rinse, repeat” cycle when it comes to inflation data and expectations for the Fed given tomorrow’s July Producer Price Index report. Data Download International Economy Producer prices in Japan rose by 8.6% YoY in July, compared with market forecasts of 8.4% and following an upwardly revised 9.4% the prior month. While marking the 17th straight month of producer inflation, the latest reading was the softest since last December. China's annual inflation rate rose to 2.7% in July from 2.5% in June and compared with market forecasts of 2.9% but even so the July figure marked the highest reading in the last year. The country’s Producer Price Inflation figure for July eased to a 17-month low of 4.2% YoY from 6.1% the prior month and less than the market consensus of 4.8%. Annual inflation rate in Germany was confirmed at 7.5% YoY for the month of July, down slightly from June’s 7.6% reading but still above the March and April figures of 7.3%-7.4%. The annual inflation rate in Italy slowed to 7.9% YoY in July from June’s 8% reading matching expectations for the month. While energy prices declined, prices for food and transportation rose at a faster pace. Domestic Economy This morning we have the usual Wednesday weekly reports for MBA Mortgage Applications and Crude Oil Inventories from the U.S. Energy Information Administration. At 10 AM ET, Wholesale Inventories for June will be published, and the figure is expected to rise 1.9%. While investors and economists will keep more than a passing interest in those reports and data, as we discussed above, it will be the July Consumer Price Index report at 8:30 AM ET that will shape not only how the US stock market opens today, but also expectations for the Fed’s next course of monetary policy action. The U.S. Energy Information Administration (EIA) expects domestic production of crude oil, natural gas and coal will all increase next year compared with this year. It forecast US crude production rising 6.7% to an all-time annual high 12.7M bbl/day in 2023 from 11.9M bbl/day in 2022, US natural gas output climbing to 100B cubic feet (cf)/day from 97B cf/day, and US coal production inching up to 601M short tons in 2023 from an expected 599M this year. The EIA also modestly increased its 2022 average nationwide gasoline price forecast to $4.07/GALLON vs. $4.05 if called for last month. It now also sees 2023 prices at $3.59/GAL vs. its previous forecast of $3.57. Markets Stocks continued in their holding pattern waiting for the latest CPI print save for some fundamental stories pushing Technology names and small caps around. The Dow and the S&P 500 were down slightly at 0.18% and 0.42%, respectively while the Nasdaq Composite dropped 1.19% and the Russell 2000 closed down 1.46% on the day. Energy names led the way yesterday but were overpowered by Technology and Consumer Discretionary sectors. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -9.81% S&P 500: -13.51% Nasdaq Composite: -20.14% Russell 2000: -15.83% Bitcoin (BTC-USD): -52.08% Ether (ETH-USD): -55.38% Stocks to Watch Before trading kicks off, CyberArk (CYBR), Fox Corp. (FOXA), Jack in the Box (JACK), Nomad Foods (NOMD), Vita Coco (COCO), Tufin Software (TUFN), and Wendy’s (WEN) will be among the companies issuing their latest quarterly results and guidance. At 9 AM ET, Samsung (SSNLF) will hold its Galaxy Unpacked 2022 at which it is expected to introduce new Galaxy foldable smartphone models, a new Galaxy Watch, and Galaxy Buds. Shares of advertising technology platform company The Trade Desk (TTD) jumped after the company reported quarterly results that topped expectations and guided current quarter revenue above the consensus forecast. The RealReal (REAL) reported a smaller than expected bottom line loss for its June quarter as revenue for the period rose 47.2% YoY to %154.44 million, topping the $153.99 million consensus. However, the company issued downside guidance for both the current quarter and 2022. Revenue for the September quarter is now expected to be $145-$155 million vs. the $164.3 million consensus; for the full year of 2022, revenue is forecasted to be $615-$635 million vs. the $653.7 million consensus. Shares of Coinbase Global (COIN) moved lower after it reported June quarter results that missed top and bottom line expectations. Revenue for the quarter fell 63.7% YoY as Total trading volume fell 53.0% YoY and 29.8% sequentially to $217 billion. Monthly Transacting Users (MTUs) grew 2.3% YoY but fell 2.2% sequentially to 9.0 million. For the current quarter, Coinbase sees the number of MTUs trending lower sequentially and total trading volume to be lower compared to the June quarter. Shares of Sweetgreen (SG) tumbled in aftermarket trading last night after the company missed quarterly revenue expectations, lowered its 2022 forecast, announced it will lay off 5% of its workforce, and downsize to smaller offices. ChipMOS TECHNOLOGIES (IMOS) reported its July revenue was $65.1 million, a decrease of 19.4% YoY and down 7.7% MoM. Taiwan Semiconductor (TSM) reported its July revenue increased 49.9% YoY to NT$186.76 billion, which equates to a 6.2% MoM improvement. Electric vehicle subscription startup Autonomy placed a $1.2 billion order for 23K electric vehicles with 17 global automakers, including BMW (BMWYY), Canoo (GOEV), Fisker (FSR), Ford (F), General Motors (GM), Hyundai (HYMTF), Lucid Group (LCID), Mercedes-Benz (DDAIF), Polestar (PSNY), Rivian (RIVN), Stellantis (STLA), Subaru (FUJHY), Tesla (TSLA), Toyota Motor (TM), VinFast, Volvo Car (VLVOF) and Volkswagen (VLKAF). IPOs As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Bumble (BMBL), CACI International (CACI), Coherent (COHR), Dutch Bros. (BROS), Red Robin Gourmet (RRGB), and Walt Disney (DIS) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Thursday, August 11 Germany: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August US: Weekly Initial & Continuing Jobless Claims US: Producer Price Index – July US: Weekly EIA Natural Gas Inventories Friday, August 12 Japan: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August China: China Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August Eurozone: Industrial Production - June US: Import/Export Prices – July US: University of Michigan Consumer Sentiment Index (Preliminary) – August Thought for the Day “The release date is just one day, but the record is forever.” ~ Bruce Springsteen Disclosures Tufin Software (TUFN), CyberArk (CYBR) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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