Verizon stock (NYSE: VZ) has been an investor favorite for its dividend yield for quite some time. Currently, Verizon stock is yielding 4 percent, because of its high dividend yield investors looking for an income from from their portfolio love Verizon.
Despite its high dividend yield, is Verizon stock a wise investment decision going into Q1 2019?
Verizon Stock Prediction
For Verizon investors, the dividend yield is a major factor behind adding the company to your portfolio. Despite the dividend payout being consistent, there are challenges that Verizon is set to face that could make it a volatile stock to hold.
With the Federal Reserve proceeding to increase interest rates we see bonds increasing in popularity as the yield is greater. However, this has the inverse effect on stocks like Verizon that pay a dividend. This is because risk increases when interest rates rise. So, if the FED increase interest rates then Verizon share price may drop due to a fall in demand.
Cost Of Debt
Verizon capitalizes off of their recurring payment revenue method, this allows them to continue running the company with vast amounts of debt. The debt that Verizon has seems to be rising each quarter, now at $113 billion, this is a worrying figure considering that Verizon only has $2.5 billion in cash. In Q3, Verizon paid out $1.2 billion in interest.
With the Federal Reserve looking to increase the interest rate even further, Verizon’s debt will cost more. Verizon will be able to pay the cost of these debt repayments back with no problem, but profits may be impacted. With profits being effected, the precious dividend yield may be harder to pay out.
Verizon has increased its dividend for 12 years consecutively, this year the dividend yield increased by 2.1 percent, which is less than the U.S inflation rate. If inflation offset’s Verizons dividend yield further, investor confidence may drop.
Verizon Stock Prediction
The wireless market is a battle between monoliths, with T-Mobile fast on the rise, Verizon is feeling the pressure. T-Mobile have began including a free Netflix subscription with family plans and scrapped contracts. These factors are helping T-Mobile (NASDAQ: TMUS) gain the competitive edge over Verizon.
This level of competition isn’t helping Verizon overcome the previously mentioned challenges.
We currently give Verizon stock price a 12-month estimate of $58 USD.
Our analyst currently gives Verizon a “HOLD” rating.