Smart Dividend Portfolio Edition #36: Communicating Success
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Dear Investor,
Welcome to the 36th edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: November 25, 2024
Stock markets were a sea of green this past week, with all but one S&P 500 sectors closing the week higher. The S&P 500 (SPX) gained 1.68%, while the Dow Jones Industrial Average (DJIA) jumped by 1.96%, reaching a new record. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) rose by 1.73% and 1.87%, respectively.
Cyclical and domestically-oriented stocks led the gains, with Consumer Staples, Materials, Real Estate, Utilities, and Industrials far outpacing gains in Technology stocks. Investors projected that Trump’s tariffs would boost U.S. manufacturing, upping their bets for cyclicals such as industrial firms and materials producers. Utility stocks were strongly boosted by Nvidia’s remarks about the AI surge.
In addition, last week investors pulled money from growth stocks to bet on value, with the latter seen as having particularly promising prospects under the new administration while being undervalued. As a result, Financials and Energy continued their climb higher, with the former rising to the top of the year-to-date sector performance table.
Tech stocks, and specifically semiconductor large caps that have clocked in outsized gains in the past two years riding the AI train, now seem to be in a consolidation phase as investors weigh further growth prospects versus their often-hefty valuations. The market as a whole is trading at valuations far higher than the historical averages, which portends lower long-term gains going forward.
The good news for investors is that there are plenty of fairly-priced stocks within the large-cap universe, and there are even more options that are below the large market-cap threshold. Another vote in their favor is that the robust economic backdrop, coupled with the expected policy changes under Trump 2.0, supports optimistic outlook for stocks that until a couple of months ago were all but forgotten, overshadowed by their flashier tech peers.
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This Week’s Quality Dividend Stock Idea
Verizon Communications, Inc. (VZ) is a leading American telecommunications company providing wireless and wireline communication services, as well as technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide.
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History of Modern Communications
The company traces its roots to Bell System, which was founded in 1877 and for over 100 years dominated the telephone services industry in North America. In 1984, the monopoly position of the Bell System ended when it was broken up into seven regional operating companies known as “Baby Bells”. Bell Atlantic, headquartered in Philadelphia, emerged as one of these Baby Bells, serving the Mid-Atlantic region.
In 1997, Bell Atlantic acquired NYNEX, expanding its reach into the Northeastern U.S. The pivotal transformation began in 2000 with Bell Atlantic’s merger with GTE, a national telecommunications company, creating Verizon Communications and marking its entry into wireless and broadband markets.
Verizon’s Wireless division was established in 2000 through a joint venture with Vodafone, which Verizon fully acquired in 2014. Other key acquisitions included MCI Inc. in 2006, bolstering Verizon’s enterprise business, and AOL in 2015. This was followed by the acquisition of Yahoo’s core assets in 2017, which positioned Verizon in digital media.
Verizon also spearheaded 4G LTE deployment in the U.S., launched its 5G network in 2019, and expanded into fiber-optic services with the Fios brand, evolving into a telecom giant with extensive consumer and enterprise offerings.
Today, with a market cap of almost $182 billion and annual revenues of $134 billion, VZ ranks #31 in the Fortune 500 list of largest U.S. companies and serves 99% of Fortune 500 members. Verizon operates in more than 150 countries and is the world’s second-largest telecommunications company by revenue. The company’s mobile network is the largest wireless carrier in the U.S., serving over 114 million subscribers.
Verizon began trading on the NYSE in 2000. Today, its shares are included in several major stock market indices, such as the S&P 500, the blue-chip Dow Jones Industrial Average, and the large-cap indexes S&P 100 and Russell 1000.
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The Wireless Leader
Verizon operates through two segments, strategically managed as distinct business units: Verizon Consumer Group (Consumer) and Verizon Business Group (Business).
The Consumer segment, responsible for 76% of 2023 revenues, offers wireless and wireline communications services to individual customers. Its wireless services operate across one of the most extensive networks in the U.S. under the Verizon brand, as well as through wholesale and other partnerships. Additionally, Verizon provides Fixed Wireless Access (FWA) broadband via its 5G and 4G LTE networks. The company’s wireline services are available in nine states across the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., through its 100% fiber-optic network under the Verizon Fios brand. In areas not served by Fios, Verizon offers services over a traditional copper-based network.
The Business Group, which provided 22% of 2023 revenue, caters to corporate clients, offering a wide range of wireless and wireline communications services and products, including FWA broadband, data, video, and conferencing services. It also provides corporate networking solutions, security and managed network services, local and long-distance voice services, and network access for various Internet of Things (IoT) products and services.
VZ is the largest wireless communications provider in the U.S. and a clear market leader in the field. However, the company doesn’t rest on its laurels, defending its wireless business – which comprised 75% of 2023 revenue across segments – against stiff competition by heavily investing in strengthening its network.
Thus, since the 2021 acquisition of C-Band licenses, VZ has invested in expansion of the spectrum, which is particularly valuable for 5G network deployment and is crucial for technological advancements such as AI and IoT. The C-Band spectrum plays a critical role in Verizon’s strategy to expand its 5G coverage and capabilities, bridging the gap between coverage and performance for modern wireless networks.
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Leverage Necessary to Expand and Compete
Verizon has accumulated substantial debt due to strategic investments aimed at expanding and enhancing its network infrastructure and service offerings. These included spectrum acquisitions, such as the $45 billion invested in C-Band licenses, as well as continuous investment in upgrading and expanding its network infrastructure, including the rollout of 5G technology and fiber-optic services.
Moreover, strategic corporate acquisitions added to its debt load, even though these are necessary for maintaining its market leadership and expanding its reach as a path to revenue growth. Thus, in September 2024, Verizon announced a $20 billion deal to acquire Frontier Communications, which has over 2 million fiber-optic connections across 25 states.
Frontier’s shareholders approved the sale, meaning that VZ will soon command a total of 10 million fiber-optic customers. In addition, the acquisition allows Verizon to return to the most lucrative U.S. markets – California, Texas, and Florida – which the company exited in 2016. The expanded fiber offerings are slated to help VZ grow its cellular customer base, fending off competition. Although the deal will add to Verizon’s already large debt pile, it is cheaper and less time-consuming than new fiber-optic construction.
Despite all the outlays, the telecom giant has made steady progress in managing its financial obligations, reducing its debt-to-equity ratio from 195% to 156% over the past five years. Its net debt-to-equity ratio is still high at 150%, but the debt is well-covered by operating cash flows, while the interest is covered by EBIT five times over. Moreover, credit rating companies don’t see VZ’s debt size as a significant risk, which is reflected in the company’s high ratings: “A-” at Fitch, “BBB+” at S&P, and “Baa1” at Moody’s.
Particularly, Fitch reviewed and confirmed its Verizon rating after the Frontier acquisition announcement. The agency dubbed the deal “both offensive and defensive,” since it will increase and expand the company’s wireline offerings amid competitors’ efforts to aggressively expand their fiber networks. In addition, Fitch has praised VZ’s solid margins and profitability and high financial flexibility. The company’s wide economic moat and strong market presence enable it to consistently generate significant free cash flows.
Verizon’s quarterly performance has been improving, with the company beating analyst EPS estimates in seven out of eight recent quarters. While its business segment continues to face a challenging revenue environment, Verizon’s consumer segment is projected to witness steady growth. Analysts are in wide agreement that the company’s strategic investments will help it return to revenue and net earnings growth as soon as next year.
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High-Yield Dividend at Bargain Price
Verizon’s predecessor companies distributed dividends to shareholders for many years. Building on this heritage of stability and reliability, the company began disbursing dividend payouts in 2000, right after it took on its current form.
VZ has been increasing its payouts over the past 22 years, which makes it a soon-to-be Dividend Aristocrat. Its stellar dividend track record and reasonable payout ratios, coupled with strong cash-generation abilities, confirm that the lucrative status is as good as secured.
Verizon’s dividend growth hasn’t been spectacular at about 2.5% CAGR in the past decade. However, fast growth isn’t to be expected as the company’s dividend yield is one of the highest on the market, currently reaching 6.2% (more than double the average for the high-yielding Communication Services sector). Analysts project continued steady growth of 1-2% p.a. for years to come.
Verizon’s stock has gained about 21% in the past 12 months, underperforming its competitors AT&T and T-Mobile (who pay lower and much less reliable dividends). As a result, the company is now trading at very attractive valuations, which reflect large discounts to the sector’s average multiples. VZ comes at the bottom of the valuation table compared to its peers in the industry, including global competitors. Moreover, based on future cash flow projections, Verizon appears to be undervalued by about 70%.
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Investing Takeaway
Verizon is a stable, low-risk business with an extensive customer base and a strong competitive position. The company has made strategic investments that should drive revenue and earnings growth, further enhancing its already robust cash-generation capabilities. The company’s long-term fundamentals remain intact with a positive outlook, supporting the projections of stably rising high dividend payments for years to come. Currently trading at discounted valuations, VZ offers long-term income investors a compelling mix of stability and rich dividends.
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Dividend Investor Portfolio
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Portfolio News
▣ The ex-dividend date for LyondellBasell (LYB) is December 2nd. In other company news, LYB announced a management transition. Michael McMurray will retire as CFO on March 1st, 2025, with Agustin Izquierdo stepping in as his successor. Izquierdo, who is currently serving as the Senior VP of O&P Americas & Refining, aims to build on McMurray’s achievements and strengthen the company’s financial strategy.
▣ Qualcomm (QCOM) saw it stock decline significantly last week after the company provided new financial targets for its non-smartphone business at its Investor Day 2024 event. At the moment, the chip giant derives about 65% of its revenue from smartphone producers embedding their products in the handset devices. However, QCOM is actively pursuing a diversification strategy, expanding into semiconductors for automotive, IoT, and other uses. According to the company, its non-smartphone business will generate a combined $22 billion in sales by 2029, helping it to reach a target of 50% non-smartphone revenues by the end of the decade.
Qualcomm forecast that the largest contribution to non-smartphone revenue will come from its IoT division, which counts PC chips among its segments. The company’s AI-supporting chips already power Microsoft’s latest-generation laptops. In addition, its automotive chip business is surging, with sales increasing by almost 70% YoY last quarter.
Still, the smartphone market remains QCOM’s most important segment, and the company continues to see strong demand at both the high- and low-end markets. Amid Apple’s expected phaseout, the Android market is more than ready to fill the void. Thus, Qualcomm is expected to supply 100% of the chips for Samsung’s new Galaxy. Moreover, analysts expect the adoption of smartphones with AI capabilities to be immensely beneficial for the company.
While investors were spooked by potential short-term revenue impacts stemming from diversification efforts, analysts say that they align with Qualcomm’s long-term growth objectives and demonstrate a proactive approach to navigating the evolving technology landscape. Thus, Bank of America analysts reiterated their price target, implying a potential upside of over 50% in the next 12 months. The BofA analysts added that they are optimistic regarding QCOM’s diversification into high-growth markets.
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Recent Trades
None at the moment, although we are constantly evaluating stocks for a possible addition to the portfolio. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.81% | +9.40% | $4,976.56 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Dec 06, 2024 | Jan 01, 2025 | 2.24% | $5.60 |
| Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 5.67% | $1.49 |
| Amgen (AMGN) | Nov 15, 2024 | Dec 06, 2024 | 3.09% | $9.00 |
| BlackRock (BLK) | Dec 08, 2024 | Dec 23, 2024 | 2.56% | $20.40 |
| Edison International (EIX) | Dec 27, 2024 | Jan 31, 2025 | 4.82% | $3.12 |
| EOG Resources (EOG) | Dec 13, 2024 | Dec 30, 2024 | 3.95% | $3.64 |
| IBM (IBM) | Nov 12, 2024 | Dec 10, 2024 | 3.13% | $6.68 |
| JPMorgan Chase (JPM) | Jan 06, 2025 | Jan 31, 2025 | 2.86% | $5.00 |
| Kroger (KR) | Nov 15, 2024 | Dec 01, 2024 | 2.82% | $1.28 |
| LyondellBasell (LYB) | Nov 24, 2024 | Dec 04, 2024 | 5.27% | $5.36 |
| Philip Morris (PM) | Dec 20, 2024 | Jan 10, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Nov 29, 2024 | Dec 13, 2024 | 2.25% | $3.40 |
| VICI Properties (VICI) | Dec 20, 2024 | Jan 04, 2025 | 5.19% | $1.72 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
