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Verizon (NYSE:VZ) is one of the biggest companies in the telecom sector based on revenues and network coverage. The company has one of the best wireless networks in the country, which contributes massive amounts of cash towards the total cash flows of the company. As a result of these massive cash flows, the company has been able to pay generous dividends in the past - the growth in dividends have been slow (around 3% per annum) but consistent, and the cash flows have been available to support dividends as well as capital expenditures. Regardless of the sluggish growth rates in the industry, the company has a history of distributing attractive dividends to its investors.

Dividends and Cash Flows:

Dividend cuts can surprise investors, even the big players. But that does not mean it is impossible to know ahead of time whether your dividend is at risk of being reduced. The evaluation of high yielding stock is most appropriately done by the payout ratio based on free cash flows of the company. It is the finest measure of a company's ability to maintain its dividends in the long run, in my opinion. The free cash flows for Verizon have increased incredibly in the trailing twelve months. The company has achieved this by decreasing capital expenditures and financial expenses during the year in order to get strong free cash flows over the period.

Over the period of 2013, Verizon has paid cash dividends of around $6 billion to its shareholders. At the same time, the company has repurchased common shares worth $153 million. So, in total, Verizon has returned over $6.1 billion to its shareholders over the past twelve months. The company has issued new debt of over $49 billion and repaid debt (in term of bonds) worth $8 billion. As a result, the net increase in total debt of the company comes close to $41 billion. The debt increase is mainly due to the acquisition of Vodafone's stake in Verizon Wireless.

Verizon has shown an improvement in the free cash flows during the last year. The company has reported an increase of 45.1% in free cash flows compared to 2012. The free cash flows have risen from $15.3 billion to $22.2 billion during the last twelve months. The increase is followed by the impressive net income in the year, which is due to the consistent impressive performance of Verizon Wireless. The capital expenditures during the year have been close to $16.6 billion.

The payout ratio for the company is around 67% based on free cash flows. In my opinion, the payout ratio will reduce due to the higher earnings growth rate and the nearly constant dividends of the company. The operating cash flows of the company have risen to around $39 billion, showing an increase of 23.17% during the year.

Future Growth and Opportunities

The leap Verizon took into the mobility, broadband, video, cloud services and security businesses has now come to the surface with handsome profitable growth and opportunities. The last year proved to be great for the company in terms of the acquisition of Vodafone's stake in Verizon Wireless, which gave the company sole ownership of the best asset in the global wireless industry. Verizon has completed its LTE coverage build and is ready now to reap the significant opportunities in the 4G LTE network business which represented 69% of total data traffic on the network. Furthermore, Verizon has invested in cloud services and a mobile healthcare platform which should ensure revenue and cash flow growth in the future. The company has plans to invest in its networks and the acquisitions of new spectrum as the platforms for future growth and innovation.

Conclusion

Verizon is one of the best dividend paying stocks in the sector, in my opinion. The company generates massive cash flows, and the acquisition of Vodafone's stake in Verizon Wireless will further enhance its cash flows available to shareholders. As a result, the dividends will continue to grow and the long-term stability of the dividends will be ensured. In addition, the total control on the most lucrative asset of the company will have a positive impact on the stock price and the company will be able to derive further growth from the wireless segment. In my opinion, Verizon will see a substantial rise in the stock price during 2014, and shareholders will benefit both in terms of dividends as well as capital gains.

Source: Verizon: One Of The Best Dividend Stocks?