Verizon Is Cutting 3,000 Jobs and Handing 274 Stores to Franchisees Right Before July 24 Earnings. Is the 6.5% Dividend Still Safe?

Verizon (NYSE: VZ) spent last week doing what it has done all year under CEO Dan Schulman: getting smaller. The telecom giant said it will sell 274 company-owned retail stores to franchise operators and cut about 500 corporate positions, moves that affect roughly 3,000 employees in total. The changes take effect in mid-August and come on top of the more than 13,000 job cuts Verizon announced in November.

Headlines like these can spook income investors. But does it make sense to be fearful? At the stock's current price near $44, shares yield about 6.5% -- one of the largest payouts among major U.S. companies.

So, with second-quarter earnings due Friday morning, July 24, is a dividend this big still safe at a company this focused on cutting?

I believe it is. If anything, the restructuring is part of why.

Image source: Getty Images.

Shrinking by design

Schulman took over in October and has moved quickly to build a leaner company. The November restructuring was Verizon's largest-ever round of layoffs, and it included handing 179 stores to franchisees.

Last week's move extends the same strategy, leaving Verizon with about 1,000 corporate-owned stores. Most of the affected retail employees' jobs shift to the franchise operators taking over their locations rather than disappearing outright.

So far, the approach has coincided with better results, not worse. First-quarter revenue rose 2.9% year over year to $34.4 billion, and cash flow from operations came in at $8 billion. And adjusted earnings per share climbed 7.6% to $1.28 -- an acceleration the company said was its best quarterly growth on that measure since 2021.

The subscriber trends have turned as well. Verizon added 55,000 postpaid phone customers in the first quarter, its first positive result on that metric in a first quarter since 2013. Broadband remained a growth engine, adding 341,000 net customers, including 214,000 fixed wireless access connections.

Additionally, management raised its full-year guidance, now calling for adjusted earnings-per-share growth of 5% to 6%.

The dividend math

A dividend is only as safe as the cash flow behind it. And Verizon's cash flow is heading in the right direction.

Verizon generated $3.8 billion of free cash flow during the period, up 4% year over year. For the full year, management guided for free cash flow of at least $21.5 billion, or growth of about 7%, even while spending $16 billion to $16.5 billion on capital expenditures.

The dividend costs Verizon a little over $11 billion a year. The company paid $11.2 billion in cash dividends in 2024, for instance. In other words, guided free cash flow covers the payout nearly twice over.

That's a comfortable cushion. It's also what lets a company keep raising its dividend straight through a restructuring -- Verizon has increased its payout for 20 consecutive years, a streak management extended in January.

And the valuation adds another layer of support. Shares trade at about 10 times earnings and about 9 times consensus earnings-per-share estimates for the next 12 months. Even measured against earnings rather than cash flow, the payout ratio sits near two-thirds -- elevated for most companies, but ordinary for a telecom. Nobody is paying a premium here for growth that doesn't exist.

There is an important caveat, though: growth is thin. Mobility and broadband service revenue rose just 1.6% year over year in the first quarter, growth management said was dented by a January network outage.

Of course, cost cuts can fund a dividend for a long time. But they can't grow one forever. Eventually, the leaner Verizon has to deliver sustained subscriber and revenue gains, not just a smaller expense base.

That's what makes Friday's report worth watching. The items I'd check first are free cash flow, postpaid phone additions against the company's full-year target of 750,000 to 1 million (management expects the upper half of that range), and service revenue growth with the outage noise gone.

Unless those numbers crack, the dividend looks well protected. A payout covered nearly twice over by free cash flow, backed by improving subscriber trends and a management team attacking the cost base, is not a payout in danger.

For income investors, I think the dividend stock remains a solid option at today's price. Collect the 6.5% yield, and let Schulman keep shrinking the company into better shape.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.