Verizon’s Buy Signal May Be Getting A Boost
February 4, 2009 by Tisa Silver
Filed under Finance
Verizon Communications (Ticker: VZ) was the first Techie Tuesday stock of 2009 and even though the reception was a little fuzzy, VZ was able to put out a BUY signal.
Earlier this week, I was perusing the MarketWatch web site and Barron’s lured me in with the headline “Why Verizon stock could jump 30% in the next 2 years.” Tell me more! I clicked the link and arrived at this one-minute video.
Sounds good and you can’t fit much into a minute, but I needed more to go on with such a powerful headline.
So I did some digging and there are many things that the technical side of analysis will not reveal. Here are a few tidbits on Verizon that stood out for me:
Hefty payout ratio: According to Yahoo! Finance, Verizon has a 77 percent payout ratio. This means that for every $1 of profits Verizon earns, 77 cents are paid to shareholders in the form of dividends.
Dividend yield: Verizon has a 6 percent dividend yield. This means that the annual dividend is 6 percent of the company’s current stock price. Dividends can help soften the blow of a decline in a stock’s price. Verizon’s stock has fallen 14 percent in the past 52 weeks.
Risk-return trade-off: Even though VZ has fallen 14 percent, the stock performed better than the market and with less risk. The S&P 500 fell 37 percent for the same period. Verizon has a beta of 0.79. Beta is a measure of systematic (or market) risk.
This is in no way a recommendation to purchase Verizon’s stock and no one knows if Barron’s 30 percent jump will happen. Analysts and reporters offer their opinion on stocks everyday. But after the Barron’s minute, I can see how some may find VZ attractive in its current price range.
Definitions…oh the definitions! I don’t know what to do with myself. If only I could get a more solid “buy” from the prof instead of the legal disclaimer “This is in no way a recommendation to purchase Verizon’s stock and no one knows if Barron’s 30 percent jump will happen”. Oh well I guess we all have to CYA since lawyers may be lower on the ethical evolutionary scale than (public) bonus taking CEO’s.
btw – is that dividend yield a fixed payout regardless of yearly profit? Do all companies have this? I own no individual stock so it is not something to which I pay attention. and if so then I better understand how that 6% can offset the 14% drop in value. And how the heck do you budget for this if stock price fluctuates? Granted, there is a fixed number of shares out in the public but in Jan it may be $60/share and come dividend time it might be $100/share. That would be a significant difference in payout. As I have stated before I know nothing about this stuff and I am sure I am displaying my ignorance in its full glory – ahhhh, anonymity is grand!
Thanks for the comment and questions. I am certain that other people are wondering the same things. Here’s a brief lesson on dividends.
Dividends on common stock are optional and adjustable, meaning that companies do not have to pay dividends and if they decide to pay dividends the amount can be altered.
For companies that pay dividends, lowering or eliminating the dividend is looked upon very poorly by investors. It is often a sign that the company needs to hold on to cash or is in trouble.
Dividends are typically paid quarterly, so you can count on them like clockwork. Even if a company keeps the same dividend amount (i.e. $0.60 per share per quarter) forever, the dividend yield would change daily as the stock’s price changes. The formula for the yield is the dividend per share divided by the stock’s price. The lower the stock’s price, the higher the dividend yield. The lower price makes Verizon’s yield more attractive now as opposed to one year ago.
There are two ways to make money by buying stocks: 1. when the stock price rises (this is your capital gains yield) and 2. when the company pays dividends (dividend yield). A higher dividend yield can provide you with a buffer during times when the stock’s price falls.
Unfortunately, I have to put a disclaimer on just about everything!