Portfolio Update
The FiveTwenty portfolio received $36.00 dividends in the past week. TROW paid a one time special dividend of $1 per share during the week.
| Past Week Dividend | $36.00 |
| Current Quarter Dividend (Q3 2021) | $36.00 |
| LifeTime Dividend | $541.34 |
| Estimated Annual Dividend | $2,057.28 |
The capital allocation for the week of 07/11/2021 to 07/17/2021 will be used to establish a position in Verizon Communication (NYSE: VZ).
VZ – Company Profile
Verizon Communication (VZ) provides communications, information, and entertainment products to consumers, businesses, and governmental entities world wide. As of December 31, 2019, the companies consumer segment had 95 million wireless retail connection, 6 million broadband connections, and 4 million Fios video connections. The business segment had 25 million wireless retail postpaid connections and 489 thousand broadband connections. Official Site | Wikipedia
| Dividend Streak | 14 years |
| Yield | 4.48% |
| Payout Ratio | 50.7%* (GAAP 55.04%) |
| P/E | 11.33* (GAAP 12.30) |
* computed using TTM adjusted EPS of $4.95 as of Q1 2021
Financials
Does VZ have the financial means to sustain and raise its dividend going forward?
Over the last decade, VZ grew revenue from $110.9 billion in 2011 to $128.3 billion in 2020. net earnings grew from $2.4 billion to $17.8 billion. However, net earnings were much more volatile during the period than revenue.
In the last 10 years, VZ’s GAAP EPS reflected the same volatility seen in GAAP net earnings. However, adjusted EPS, a non-GAAP financial measure provided by management as a more comparable financial performance metric, showed a much smoother growth trend. Adjusted EPS grew from $2.15 per share in 2011 to $4.9 per share in 2020, a CAGR of 8.59%.
The average dividend per share growth rate was 2.7% per year in the past 10 years and 2.1% per year in the past 3 years. (per GuruFocus) With adjusted EPS growing at a faster rate during the period, this has resulted in a contraction of the payout ration from about 91% in 2011 to just above 50% in 2020.
VZ in 2021 and beyond
For Q1 2021 VZ reported revenues of $32.9 billion and increase of 4% over Q1 2020. The increase was matched by the growth in adjusted EPS. Adjusted EPS were $1.31 for the quarter, 4% higher the then $1.26 reported in Q1 2020. Revenue lost due to net losses of wireless postpaid accounts in the consumer segment were offset by strong net additions for FIOS internet as well as wireless accounts in the business segment.
Looking ahead, VZ is guiding a 2%+ total revenue growth for 2021. It also expects adjusted EPS to come in between $5.00 and $5.15 per share, a 2% to 5% increase from the previous year.
Valuation
Are we paying too much for VZ at the current share price?
In the last 10 years, VZ’s P/E ratio saw a low of 6.07 and a high of 146.45, with a median value of 14.88. (per GuruFocus) The current TTM P/E ratio of 11.33 on adjusted EPS and 12.3 on GAAP EPS is below the historical median, suggesting that VZ is currently trading at a slight discount to earnings.
The current share price of $56.07 is 1.8% below the 50-day moving average and 2.9% below the 200-day moving average. Additionally, the share price is near the 30th percentile of the 52 week trading range.
This year the share price has pulled back from the highs it reached at the end of last year. Therefore it is currently trading below the pre COVID-19 pandemic highs.
Yield
How does the current dividend yield for VZ compare to historical values?
In the last 10 years, the dividend yield for VZ has been in a range of 3.81% to 6.33%, with a median of 4.45%. The current TTM yield of 4.48% is just about at the median of that range.
Given the already attractive yield for VZ, we are content with establishing our opening position at a yield that matches its historical value.
Thesis
Why are we adding VZ to the FiveTwenty portfolio?
VZ is one of the top 3 wireless service providers in the United States. It provides a reliable service that allows it to maintain and grow it’s customer base. Furthermore, the company is in the early stages of rolling out 5G services, which should allow it to maintain and further grow its user base.
As one of the 3 entrenched players in the US wireless market, with a business that has proven to be downturn resistant both during the 2008 -2012 recession as well as the 2020 COVID-19 pandemic, we believe that VZ will continue to be a reliable source of growing dividends.
Additional Research
Photo by Eirik Solheim on Unsplash
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