Monday, March 07, 2005
We have held Verizon, the telecom co., for the past few years with little to show for it. We have done so because we believed that it was emerging as the dominant phone company in the US. It's been a tough hold because, during this time, VZ has not increased its dividend. Let's see dying industry, no dividend hikes--this sounds like the anti-Rising Dividend stock, not the real thing. We have held VZ for three reasons: 1. Telecommunication is an essential service, which is a hallmark of Rising Dividend Investing, 2. They have had massive free cash flow all along, so we knew they could have been increasing the dividend if they had wanted to. 3. Point 2 usually does not carry much weight with us, but in the case of VZ, they were using the cash flow to pay down debt, which we think is a good proxy for a dividend hike. This past week, VZ announced a 5.2% increase, their first such increase since 1997. With their debt now almost half what it was just a few years ago, we believe more dividend hikes are coming. With its current dividend yield of 4.4% and the 5.2% hike, it will post a dividend return for the coming year of 9.6%. We wouldn't be surprised if the total return for the stock did the same.