Will This 4.5% Dividend Stock Help Protect Your Retirement Portfolio?
Over the last couple months, I’ve shown you stocks to avoid…
Stocks to consider buying…
And some of the best stocks related to the coming Internet of Things… Which you can find linked further below.
All these recommendations are to help you either avoid pain and terrible stocks. Or to help you find potentially great stocks to invest in during this pandemic.
If you do both well, it helps you earn higher than average investment returns and build wealth.
Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.
To help you figure out how to protect your retirement portfolio in these uncertain times, today I want to answer – Will This 4.5% Dividend Stock Help Protect Your Retirement Portfolio?
Verizon Communications (VZ) is the United States largest cell phone provider with more than 115 million phone, internet, and data subscribers nationwide.
Because of its power of its business, it weathered Covid fine… And from its low on March 25th, 2020 to today now in late April 2021 its stock is up 12.8% as you can see below.
But this is all in the past…
Today, I want to help you figure out whether it’s a great buy now for your retirement portfolio with all the uncertainty we’re dealing with today.
It’s based in New York City New York. It has a $233.2 billion market cap. And it pays you a massive 4.46% dividend. Which is reason #1 to consider buying its stock.
Verizon’s 4.46% Dividend
Over the last decade Verizon’s paid out a total of $22.41 per share in dividends.
At today’s share count of 4.142 billion shares that’s equal to $92.82 billion paid out to shareholders in that time.
It also grew its dividend 25.3% from $1.98 per share in 2011 to $2.48 per share now.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
These regular payments will help you earn more money for your retirement. And the solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.
It can do this because it earns massive profits. Which is reason #2 to consider buying Verizon for your retirement portfolio.
Verizon Earns Massive Profits
Over the last decade it earned an average operating income margin of 20.1% per year.
I look for anything above 10% so this is fantastic.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 11.1% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is safe and ultra-valuable.
Verizon surpasses both metrics which means it’s a world class business operation.
This shows the power of the company to survive and thrive – even during the worst economy we’ve seen since at least the end of World War 2.
But because of its business model it has a ton of debt.
Verizon Has A Huge Amount of Debt
Because of its business model in owning and operating cell phone lines and tower infrastructure… Verizon has a huge amount of debt.
Because the constant need to buy, upgrade, and maintain its these assets is extremely expensive. As one example take the 5G build out that is going on worldwide right now.
This will cost hundreds of billions or trillions of dollars when combined over the next decade or so.
As of this writing VZ has $10.2 billion in cash compared to staggering $179.81 billion in debt.
As a percentage of its balance sheet total liabilities make up 78.5%.
Debt makes up a gigantic 77.1% of its market cap.
And its debt-to-equity ratio is 2.1.
These are all above the minimum thresholds I look for when considering an investment. And this makes buying Verizon stock riskier to own right now.
How much debt does Verizon have? Its one of the top 5 most indebted companies on Earth.
This is one illustration of why you can’t just rely on metrics when searching for investment.
Because of its constant need to invest and reinvest in its business its debt levels are enormous.
Plus, it’s also issued a ton of shares in the last decade to fund this growth and reinvestment as well.
From 2011 to today in 2021 its share count is up 45.9% from 2.839 billion shares to 4.142 billion shares.
All else remaining equal this means Verizon shares are worth 45.9% less now than they did in 2011. Think of dilution like inflation – but for stocks.
This debt is enough to keep me from recommending Verizon to you. But let’s finish this out and see if its cheap or not?
Verizon IS NOT Cheap…
With the markets at or near all-time highs you’d expect might expect a hugely profitable stock like Verizon to be selling at an enormous valuation.
Its not… But its still too overvalued to consider buying right now.
As of this writing its P/E is 12.3.
Its P/CF is 5.5.
Its forward P/E is 11.2.
And its enterprise value to operating income – EV/EBIT is 13.6.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
These metrics combined show that Verizon is overvalued right now.
And this means owning its stock does not give you a large margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Verizon being overvalued right now, its stock does not offer you a large margin of safety.
Especially when you consider its huge debt load too.
This means you should avoid its stock due to its valuation and debt levels.
If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy to earn high and safe returns for your portfolio – Avoid Verizon’s 4.5% dividend and consider investing in one of the stocks below.
- The Best Internet of Things Stock
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- Is Qualcomm A Buy After Sales Rise 73%?
- Should You Buy Cisco Before Earnings?
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- Why Intel Is Still A Buy After Its Latest Earnings…
- Buy This 7.9% Dividend King Today
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.
P.S. Breaking Poll – Do You Plan To Sell Your Home To Invest In Your Retirement? Vote Here