Verizon (NYSE: VZ) has developed a reputation for being an exceptional dividend stock. The telecom giant has one of the highest dividend yields in the S&P 500. At around 6.5%, it's several times higher than the S&P 500's roughly 1.4% dividend yield.
Investing in Verizon can be a great way to collect dividend income, thanks to its high yield. Here's how much you'd need to invest in the telecom stock to receive $1,000 in dividend income each year.
Verizon pays investors $0.665 per share in dividends each quarter ($2.66 annually). At that rate, you'd need to own 376 shares of Verizon to collect $1,000 of dividend income annually. With shares recently trading at around $41 apiece, you'd need to invest a little over $15,400 into Verizon's stock.
Thanks to its much higher dividend yield, that's much less money than you'd need to invest in an S&P 500 index fund to earn the same income each year. You'd need to invest nearly $77,000 into a broad market index fund to produce a yearly income of $1,000. Meanwhile, $15,400 invested in the index fund would only deliver about $200 of annual dividend income.
Verizon's high-yielding dividend is attractive because it's on a firm foundation. The telecom giant has generated $8.5 billion in free cash flow after capital expenditures through the first half of this year, more than enough to cover its $5.6 billion dividend outlay. The company is using its excess free cash flow to strengthen its already solid balance sheet.
The company's solid financial profile and growing free cash flow (it's increased by $500 million over the past year) puts it in an excellent position to continue increasing its high-yielding dividend. Verizon raised its dividend payment by about 2% last fall, its 17th consecutive year of increasing its dividend (the longest current streak in the U.S. telecom sector).
With more dividend growth likely, Verizon is an excellent stock for those seeking to collect lots of income.
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Matt DiLallo has positions in Verizon Communications. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
