The capital markets have demonstrated remarkable resilience over the past 20 months, particularly following the significant declines experienced in 2022. Since January 2023, the S&P 500 and Nasdaq Composite have posted impressive returns of 48% and 66%, respectively, showcasing strong growth after a challenging period. However, while these gains are enticing, seasoned investors understand that it may be time to reassess their positions and consider locking in some profits. Why? Because September has historically been a tough month for the stock market.
Historically, September is known for increased selling pressure, often driven by various factors. These include tax planning, where investors begin adjusting their portfolios ahead of the year’s end, and potential policy shifts by the Federal Reserve, which can impact investor sentiment. In 2024, however, there is an additional wildcard: the upcoming presidential election. The unpredictability surrounding these events can amplify volatility, leading to more frequent sell-offs as investors adjust to the uncertainty.
Given this backdrop, it might be wise to move away from volatile, high-growth stocks and instead focus on investments with more stability. One such option is dividend stocks, which offer the benefit of consistent income in the form of regular payouts, regardless of market fluctuations. While the excitement around high-growth tech stocks often grabs headlines, dividend stocks provide a more reliable stream of income, making them particularly attractive during periods of uncertainty.
One company worth considering in this regard is Verizon, a leader in the telecommunications industry. While the telecom sector may not have the allure or rapid growth potential of tech, it offers steady and reliable services that people use every day.
Companies like Verizon provide essential services such as wireless and internet connections, making their revenue streams relatively stable even during economic downturns, and what makes Verizon especially interesting is its long-standing commitment to paying and raising dividends – something it has done consistently for the past 17 years.
The telecommunications industry is often seen as a competitive one, with companies fighting for market share based largely on pricing. This makes it hard for them to show rapid growth. Yet, despite this, Verizon stands out for its commitment to returning value to shareholders. September tends to be a significant month for Verizon, as it has often announced dividend increases during this time of year. This trend makes it an appealing option for income-focused investors looking to lock in a potentially higher yield.
Of course, past performance does not guarantee future results, but the historical pattern of dividend increases from Verizon is noteworthy. To gauge whether Verizon will continue its trend, it is essential to look at its financial health. Although Verizon’s revenue growth has been relatively modest, it still generated $65.8 billion in total revenue for the first half of 2024, which represents a slight increase from the previous year. However, revenue growth alone does not tell the whole story. Verizon has shown strong improvements in profitability, with its free cash flow growing by 6.9% year over year to reach $8.5 billion in the same period. This consistent cash generation is what supports its ability to pay and raise dividends, even if its top-line growth is not particularly eye-catching.
When considering dividend-paying stocks, one critical metric investors look at is the dividend yield. Currently, Verizon offers an impressive dividend yield of 6.2%, which is significantly higher than the broader market’s yield. For example, the SPDR S&P 500 ETF Trust, which tracks the S&P 500, has a dividend yield of only 1.2%. This disparity means that Verizon offers a much more attractive income stream compared to simply investing in a broad market index fund.
Beyond its dividend yield, Verizon also looks appealing when compared to the market in terms of valuation. Verizon’s forward price-to-earnings (P/E) ratio is currently around 9.4, which is substantially lower than the S&P 500’s forward P/E ratio of 22.4. This lower valuation could suggest that Verizon is undervalued compared to the broader market, making it a potentially attractive investment for those seeking value.
Another point to consider is the market’s overall direction as we move into the final quarter of the year. While the strong performance of 2023 has been encouraging, September often brings heightened volatility, with the potential for prolonged sell-offs. Whether driven by tax strategies, monetary policy shifts, or the uncertainty of a presidential election year, market swings in the fall can create challenges for growth-focused investors. During these times, a stock like Verizon, with its strong dividend track record and lower valuation, may serve as a stabilizing force in a portfolio.
Investing in Verizon is not without risks. The telecommunications sector is competitive, and companies must continuously invest in infrastructure and technology to maintain their market positions. This can lead to high capital expenditures, which can weigh on profitability. Additionally, while Verizon has a history of paying dividends, there’s no guarantee it will continue to increase them in the future. However, the company’s ability to generate significant cash flow should give investors confidence in its ability to maintain its dividend payments.In times of market volatility, investors often look for safe havens. Dividend stocks like Verizon offer an attractive option due to their ability to provide a consistent income stream. While growth stocks can deliver impressive returns during bull markets, they are also more vulnerable to significant declines during market downturns. By contrast, dividend-paying stocks tend to be more insulated from these swings, providing a buffer against market losses.
For those looking to add stability to their portfolios, Verizon’s high dividend yield, combined with its history of raising dividends, makes it a compelling choice. Its lower valuation relative to the broader market also suggests that there may be potential for capital appreciation in addition to the income it provides. As we enter a period of increased uncertainty, with September’s historical trends and the added complexity of a presidential election year, Verizon offers a more predictable opportunity amid the noise.
