Verizon Communications Inc., the second-largest U.S. phone company, increased its quarterly dividend by the smallest amount in four years amid slowing sales growth.
Verizon added 1.25 cents per share to the dividend, boosting it to 48.75 cents, the New York-based company said in a statement. That follows a 1.5-cent increase a year ago and a 3-cent bump in 2008.
The carrier’s dividend has a correlation to its revenue, according to Bloomberg analysis. Sales may shrink in 2010, for the first time in five years, by 1.3 percent to $106.4 billion, based on the average of 25 analysts’ estimates in a Bloomberg survey. The company is grappling with home-phone losses and job cuts that led business customers to curb spending.
“The ability to return cash to shareholders has been extremely stress-tested over the past two years,” Richard Dineen, a New York-based analyst at HSBC Securities USA Inc., said before the announcement. “I could understand if there was potentially a little bit of cautiousness given the fairly weak economy.” He rates the shares “overweight” and doesn’t own any.
Verizon, based in New York, fell 25 cents to $30.01 at 1:53 p.m. in New York Stock Exchange composite trading. The shares declined 2.2 percent this year before Thursday.
The dividend will be payable on Nov. 1 to investors who own the shares as of Oct. 8, Verizon said. The company paid out almost $2.7 billion in dividends in the first half.
Verizon’s 12-month dividend yield, the annual payout per share divided by the share’s price, was 6.3 percent without the increase. Companies on the S&P 500 have an average dividend yield of 2.1 percent and those in the S&P telecommunications- services index pay out 5.7 percent on average.
Verizon investors have received shares of Frontier Communications Corp. this year after the company spun off home- phone lines in return for 68 percent of Frontier’s common stock.
That worked out to a payment of $1.85 in shares and cash, Verizon said. In addition, Frontier pays a quarterly dividend of 18.75 cents.
“There’s a case to be made that management has already given shareholders an increase this year with the Frontier transaction,” said Rick Franklin, an analyst at Edward Jones in St. Louis, who advises investors to hold the shares and doesn’t own any.
The company raised its dividend by 2.5 cents in 2007, after leaving it unchanged in 2006, the year it bought MCI Inc.
The carrier reported sales of $107.8 billion in 2009.
Bloomberg’s analysts had predicted the quarterly payout would increase to 48.5 cents. The dividend forecasts are based on seven criteria including a company’s forecasts, dividend history, regression analysis, and put-call parity.
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