Published Thu, 09 Aug 2018 16:19:24 -0400 on Seeking Alpha
As Verizon Communications (VZ) approaches the annual dividend hike in September, the temptation is to encourage the company to make a big hike. After all, tax reform boosted profits and cash flows this year beyond the normal level. My recommendation though is for the wireless giant to focus on balance sheet improvement to stave off future competition from a converging tech world so that at least the stock is good for the large dividend.
Image Source: Verizon website
Dividend Trend Over the last decade, Verizon has regularly hiked the dividend in September. The company has recently hiked the payout by slightly above 2% per year. Last year, Verizon hiked the dividend by 1.25 cents, or 2.2%, on September 7.
With the current quarterly dividend of $0.59, a similar 2.2% hike would equate to 1.30 cents. The company is likely to choose 1.25 cents for a new quarterly dividend of $0.6025 placing the dividend yield up around 4.6%.
VZ Dividend data by YCharts
Along with the Q4 earnings report in January, Verizon established the tax reform benefit as up to $3.5 billion in additional operating cash flows. Some additional expenses and higher capex will offset the ultimate free cash flow growth.
The temptation is for Verizon to increase the yield in excess of the traditional 2%+ hike due to the big financial boost from tax reform. The wireless giant earned $3.74 per share last year and analysts currently target a big 24% EPS boost to over $4.60 per share this year... Read more
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