Michael Fowlkes' Analyst Insights
Options and ETF Analyst Writer
August 29, 2016 - Verizon to announce next dividend increase
Telecom giant Verizon (VZ) has a nine-year streak of dividend increases, and the company will likely to extend its streak this week. The stock has been trending lower over the last month, but shares remain up 14.6% on the year.
VZ was recently trading at $52.99, down $3.96 from its 12-month high and $10.79 above its 12-month low. Technical indicators for VZ are bearish and the stock is in a weak downward trend. The stock has recent support above $52.15 and recent resistance below $54.00. Of the 24 analysts who cover the stock, five rate it a "strong buy", three rate it a "buy", 15 rate it a "hold", and one rates it a "strong sell". The stock receives S&P Capital IQ™s 3 STARS "Hold" ranking.
With a nine-year streak of increases, and the stock having a 57.7% payout ratio, chances are good that the company will extend its streak of increases when it announces its next distribution. Verizon already offers a hefty 4.3% yield, but that yield should rise with the next distribution. While the company will almost certainly boost the dividend, shareholders should not expect a huge increase. Last year Verizon boosted the dividend by 2.7%, and in the previous year it lifted the dividend by 3.7%. The company historically has announced its dividend increases during the first week of September, and there is no reason to expect it to deviate from that timeline this year. Expect the quarterly distribution to rise from $0.565 to around $0.58, which would translate to an increase of 2.7%. Look for news of the increase this week, with the stock trading ex-dividend during the first week of October.
Stock Only Trade
If you're looking to establish a long stock position in VZ, consider buying the stock under $53.00. Sell if it falls below $47.75 or take profits if it gets to $61.00.
If you want to set up a bullish hedged trade on VZ, consider a January 40/45 bull-put credit spread for a 25-cent credit. That's a potential 5.3% return (13.1% annualized*) and the stock would have to fall 14.6% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider a January 57.50/62.50 bear-call credit spread for a 25-cent credit. That's a potential 5.3% return (13.1% annualized*) and the stock would have to rise 9.0% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a January $55.00 covered call. Buy VZ shares (typically 100 shares, scale as appropriate), while selling the January $55.00 call for a debit of $52.10 per share. The trade has a target assigned return of 5.5%, and a target annualized return of 13.9% (for comparison purposes only).
Articles and other Content