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Published: September 3, 2009
Verizon Communications Inc. (NYSE: VZ)
did not immediately rise despite the announcement from the
company that it was raising its quarterly dividend. Most
dividend hikes do not raise the price of stocks immediately, but
this +3% rise in the dividend is an interesting one because this
is the third straight year that the company has raised its
dividend. The new dividend is $0.475 per share per quarter, up
from a $0.46 dividend for the last four quarters and a $0.43
dividend before that.
Some may point out that this is actually the smallest dividend
hike compared to the two prior dividend hikes. Frankly, in
today's business and economic climate that is a whiners'
argument that is no different than lottery ticket winners
complaining about all the taxes they will have to pay. What we
want to see is how much it can grow down the road. And just as
importantly, we wanted to see how this stacks up against rival
AT&T Inc. (NYSE: T) and its dividend history and the future
dividends.
In order to look at dividend growth projections, the first thing
we do is look at a company's earnings power and cash balances.
Because of deals Verizon's cash balance has contracted over the
last year. But despite the economy and the woes of telecom and
communications companies competing with a whole new slate of
competitors, Thomson Reuters is still looking for growth at
Verizon in 2009 and in 2010. The 2008 income was $6.428 billion
on revenues of $97.35 billion. For 2009 and 2010, the Thomson
Reuters estimates are as follows:
* 2009 estimate is $2.53 EPS and $107.8 billion in revenues.
* 2010 estimate is $2.64 EPS and $109.3 billion in revenues.
Those estimates have drifted
marginally lower over the last few
months, but the expectation is still
for some growth. The new dividend
comes to an annualized figure of
$1.90. There is plenty of dividend
coverage here in Verizon's forward
earnings if it gets anywhere close
to those estimates. The $1.90
dividend compares
to $2.53 expected EPS in 2009 and $2.64
expected EPS in 2010. Based upon that
growth, there is no reason to not
expect that Verizon could bump its
quarterly dividend by a similar
amount in another year. The new
dividend rate based on recent prices
share is 6.3%.
There is a reason Ivan Seidenberg
was named back at the end of 2007 as
our top pick for CEO of the Year.
This is just one of those reasons.
AT&T pays a $0.41 quarterly dividend, and that
has also been bumped up along with Verizon's
dividend throughout time. Based upon
recent prices, AT&T's
annualized dividend of $1.64 has
a dividend yield of 6.5%. AT&T is
up about 20% from its 52-week lows,
while Verizon stock is up about 30%
from its 52-weeks lows. As far as
AT&T's ability to keep bumping its
payout, that $1.64 current
annualized dividend also has enough
coverage if it gets anywhere close
to estimates. Thomson Reuters is
looking for $2.08 EPS in 2009 and
$2.22 EPS in 2010.
We might not see the continued
mega-hikes in payouts from the
telecom giants, but in today's world
it should probably be viewed as
"good enough" that some DJIA
components are still raising their
dividends. AT&T and Verizon, and
maybe throw in the cable companies,
are looking more and more like
utilities. But with dividend yields
of 6.5% and with some growth
expected for 2010 from 2008 and
2009, even if due to deals, AT&T
offers something for dividend
investors, defensive stock
investors, and value investors...
-- Jon C. Ogg
Editor
247WallSt.com
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