Is Verizon's 6.2%-Yielding Dividend Still Safe After This Announcement?

Telecom giant Verizon Communications (NYSE: VZ) offers investors one of the highest-yielding payouts on the S&P 500, at around 6.2%. At that high a yield, you would need to invest around $16,100 to be able to collect $1,000 in annual dividend income.

While that high level of yield is enticing, some investors may be concerned that such a high yield isn't safe. Share prices of Verizon are down 17% in the past three years, and there hasn't been much excitement in the business. Then there is also the fact that, recently, Verizon warned investors of worse-than-expected results to start the year. Could this news confirm that the stock is in trouble and that perhaps the dividend isn't all that safe?

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Verizon warns of a tough start to 2025

Earlier this month, Verizon management issued a warning, stating that the first quarter of the year may not be as strong as it had hoped it would be. It noted that competition is affecting its performance, as are concerns about the broader U.S. economy. While Verizon pulled back on promotions at the start of the year, other telecom providers did not, effectively making its plans less competitive.

It also said that there haven't been as many phone upgrades as expected. This is partly to do with people being concerned about the economy, and there simply being insufficient reasons to upgrade. One example is Apple delaying the release of key artificial intelligence features for its Siri assistant until next year. A delayed rollout of a new iPhone model may be a big part of that. Even if there is no delay, iPhone users may not be feeling inclined to upgrade their phones just yet if promised new features get delayed.

There hasn't been an adjustment to the guidance, but investors have been selling shares of Verizon on these developments nonetheless.

For 2025, Verizon projects wireless service revenue to grow within a range of 2% to 2.8%. It's coming off an already underwhelming year in 2024, where its top line of $134.8 billion rose by less than 1%. With not much growth in its operations these days, this latest news does not give investors hope that things will improve anytime soon.

Can Verizon still sustain its dividend if business slows down?

The big question for investors is whether or not a slowdown in its operations may affect Verizon's dividend. To answer that, it's important to look at its payout ratio and free cash flow.

Data by YCharts.

The first chart shows the payout ratio trend, and how much of earnings the telecom company has been paying out in dividends. At 64%, there's a decent buffer in place if the company's earnings numbers come under pressure.

The second chart displays how much excess free cash the company has left over after paying its dividend. Usually, this number has been positive, which is a good sign. Cash flow can fluctuate from one quarter to the next, depending on the timing of when the company collects receivables and makes payments on its bills. Verizon currently pays around $2.8 billion per quarter on its dividend, or around $11.4 billion over a full 12-month period. In its guidance for 2025, Verizon projected free cash flow to be between $17.5 billion and $18.5 billion, which is well above what it needs for its dividend.

Is Verizon stock a bad-news buy?

Share prices of Verizon are up around 9% this year. This recent warning did weigh on the stock, but it hasn't crippled it by any means. On Monday, the stock closed at $43.65, which is still comfortably above its 52-week low of $37.59. The business may face challenges due to the current economic conditions, but it still looks like a good long-term buy, especially if your priority is to collect a high-yielding payout.

Verizon's dividend looks safe, as there's a good buffer for both earnings and free cash flow. With the stock trading at less than 11 times its trailing earnings, it could be a good, underrated investment to add to your portfolio right now.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.