Dividend Increase | Verizon Communications (VZ)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks L3Harris for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On September 5th the Board of Directors at Verizon Communications (VZ) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.6025 up to $0.615 per share.  That's a decent 2.1% increase.  Verizon is a Dividend Contender with 15 consecutive years of dividend increases.  Shares currently yield 4.17% based on the new annualized payout.

The newly increased dividend will be payable on November 1st to shareholders of record as of October 10th.

Since I own 48.118 shares of Verizon in my FI Portfolio, this raise increased my forward 12-month dividends by $2.41.  This is the 6th dividend increase I've received from Verizon since initiating a position in February 2014.  

A full screen version of this chart can be found here.

Verizon's dividend history does have a 6 year period of no growth from 1999 through 2004.  However, there's been no cuts which is a pretty good sign.  

Dividend growth hasn't been exciting by any means, but it's consistently come year in and year out when the dividend growth streak resumed in 2005.  Annual dividend growth has ranged from 1.3% to 6.4% over the 15 rolling 1-year periods since the current dividend growth streak began.  The average dividend increase has been 3.1% with a median of 2.7%.

Of the 10 rolling 5-year periods for the current dividend growth streak, annualized dividend growth has ranged from 2.5% to 4.1%.  The average has come to 3.2% with a median of 3.0%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1984 can be found in the following chart.  

A full screen version of this chart can be found here.

Based on dividend yield theory, Verizon's current yield of 4.17% is slightly below the 5 year moving average of 4.58%.  Dividend yield theory suggests a fair value price for Verizon of $53.71 or ~10% lower than current prices.  Using dividend yield theory I would say Verizon is on the upper end of fair value at this time.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Verizon's ratios show a mixed bag of valuation.  Using enterprise value, equity plus debt less cash, Verizon is trading at a 12.0x TTM EV/EBIT ratio or a 8.3% operating earnings yield.  Looking at EV/EBITDA the ratio is 7.8x or a 12.8% EBITDA yield.  My preferred method is to use free cash flow.  The EV/FCF ratio is pretty rich at 23.0x or just a 4.3% FCF yield.

Wrap Up

This raise increased my forward dividends by $2.41 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.93% this raise is like I invested an extra $82 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 35 raises from 31 of the companies in my FI Portfolio.  Combined the dividend increases have boosted my forward 12-month dividends by $247.38.

My FI Portfolio's forward-12 month dividends climbed to $7,423.35.  Including my FolioFirst portfolio's forward dividends of $100.17 brings my total taxable accounts dividends to $7,523.52.  My Roth IRA's forward 12-month dividends remain at $613.80.  My Rollover IRA's forward dividends increased to $2,166.44.  Across all accounts I can expect to receive $10,303.76 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Verizon Communications' can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Verizon?  Was the 2% increase enough for you or too little?

Please share your thoughts below.