Interested In Verizon Communications Inc. (NYSE:VZ)’s Upcoming 1.1% Dividend? You Have 4 Days Left

Verizon Communications Inc. (NYSE:VZ) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 9th of April to receive the dividend, which will be paid on the 1st of May.

Verizon Communications's upcoming dividend is US$0.61 a share, following on from the last 12 months, when the company distributed a total of US$2.46 per share to shareholders. Based on the last year's worth of payments, Verizon Communications has a trailing yield of 4.5% on the current stock price of $54.7. If you buy this business for its dividend, you should have an idea of whether Verizon Communications's dividend is reliable and sustainable. So we need to investigate whether Verizon Communications can afford its dividend, and if the dividend could grow.

View our latest analysis for Verizon Communications

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Verizon Communications paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 59% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Verizon Communications's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Verizon Communications's earnings per share have been growing at 14% a year for the past five years. Verizon Communications has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Verizon Communications has increased its dividend at approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Verizon Communications is keeping back more of its profits to grow the business.

Final Takeaway

From a dividend perspective, should investors buy or avoid Verizon Communications? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Verizon Communications is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Verizon Communications's dividend merits.

In light of that, while Verizon Communications has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Verizon Communications has 1 warning sign we think you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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