Verizon Communications (NYSE:VZ) has been a stock that I have been long for about nine months now. I will admit that I am a bit disappointed with my holding thus far as I am down 2.3% including dividends and writing premiums. This company just cannot get out of its own way with lots of headwinds of which the questionable Yahoo acquisition is one and the fact that interest rates have been rising, causing investors to sell the high yielding dividend stocks such as Verizon for the safety of US treasuries.
I bought Verizon on the fact that it was a safety trade because in times of uncertainty that is where normal investors run to, driving the price of the stock upwards while driving the dividend yield of the stock downwards. The valuation on Verizon is pretty inexpensive as well, but it just doesn't have any real growth rate. Currently the stock trades at 14x trailing earnings while it is trading at 12x next year's earnings estimates, those are not bad numbers. However, earnings are only expected to grow 2.7% in 2017 from what they were in 2016 but that is a reasonable number as I believe it should grow around the rate of the US gross domestic product.
When the stock had pulled back at little I felt that there was room to the upside. That is when I purchased the $52.50 November call and subsidized the purchase by writing the November $55 call. I was willing to keep purchasing the stock at that price if it were to jump higher but it has floundered at around the $48 level. From its highs around $56 the stock dropped to $46 in a straight line, that is nearly an 18% move!
The dividend was very well covered as the company shells out $2.31 annually while it made $3.43 over the past year. On a cash flow basis the company paid out $9.1B in dividends over the past year on an operating cash flow basis of $28.1B. Verizon has not required any capital raises to sustain the dividend like a lot of other companies have been doing these days. So from these numbers we know the dividend is well covered and the business is intact. Now you can see why I was hoping for the stock to show a bounce by the November expiration date.
So now that my November calls have expired I will continue to be bullish on the name and look to buy even more shares of the stock. If for some reason rates begin to decline and investors flock back to the high yielding dividend stocks this will be the first place they are going to move to. In the meantime I am going to continue to write some more upside calls and collect the premiums and hope that the stock can begin to climb higher.
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am/we are long VZ.
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.