Looking at Verizon's Historical Dividend Yield

Jul.19.11 | About: Verizon Communications (VZ)

Verizon Communications (NYSE:VZ) is a consistent dividend payer in the communications services industries. VZ was formerly known as Bell Atlantic Corporation, one of the original baby bells,which merged with NYNEX. VZ was formed from the 2000 merger of Bell Atlantic and GTE. VZ is one of the world's leading providers of broadband and telecommunication services. Data prior to 2000 presented in this article reflects Bell Atlantic results. VZ currently has a market capitalization of about $104 billion with a dividend yield of 5.3%.

(Created from data from Yahoo!Finance. Three one time special dividends have been excluded from calculations. These three dividends are 11/20/2006 for $1.313 related to the spin off of Idearc, 4/1/2008 for $0.17 related to Fairpoint Communications Inc., and 7/6/2000 for $0.047.)

Similar to AT&T (NYSE:T), VZ also is currently showing a positive spread between its dividend yield and the 10-year Treasury bond. Currently, the spread is around 2%, but had been as high as 4%. It almost appears that there have been three phases for VZ in terms of spread to a 10-year treasury: 1. A pre-Internet bust where the spread was negative; 2. a post Internet decline period when the spread was around 0 and 3. a post 2008 period where the spread is positive.

(Created from data from Yahoo!Finance. Three one time special dividends have been excluded from calculations. These three dividends are 11/20/2006 for $1.313 related to the spin off of Idearc, 4/1/2008 for $0.17 related to Fairpoint Communications Inc., and 7/6/2000 for $0.047.)

This second graph shows a similar result to my previous analysis of T. The closing stock price (adjusted for splits), trailing 12 month dividends, and dividend yield all normalized to the figures from September 1984. There has been almost no capital appreciation in the stock since around 1996 (the first time it crosses the 400% line). The dividends have shown consistent growth excluding the impact of the special dividends. The trailing 12 month annual dividend has posted growth around 4.4% on average per year. This is somewhat above the recent historical growth rate but below the growth rate around 2006-2009.

VZ pays a good dividend with a very consistent record of growth and appears to have reasonable prospects. However, if interest rates begin to rise again and investors demand the same yield premium, then VZ stock price might decline. Its current yield is reasonably consistent with historical averages, suggesting a smaller likelihood of yield compression. Due to its recent stock price run up, going long VZ now would be a risky bet in pursuit of current income.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security.