Motley Fool: Verizon dividends calling

As the largest wireless carrier in the United States, Verizon Communications (NYSE: VZ) offers a safe and stable dividend funded in part by nearly 95 million monthly cellphone bills. While Verizon isn’t a growth stock (operating revenue grew just 0.8% last year), it steadily increases its dividend every year and produces strong free cash flow (around $17 billion in 2019) to cover the payout. That’s a testament to Verizon’s scale: The wireless industry is notoriously capital intensive, yet Big Red is still able to invest heavily in 5G technology while having plenty of cash left over with which to pay investors.

Competition will remain intense – particularly if T-Mobile US and Sprint are able to close their proposed $26 billion merger, as the combined company would represent a stronger threat. But Verizon has been defending its position for quite a while; the company recently posted its highest number of fourth-quarter wireless additions in six years. Its total debt load is high at $111.5 billion (as of Dec. 31, 2019), but Verizon plans to deleverage over time while remaining committed to its dividend.

In the event of an economic downturn, cellphone bills and other basic utilities remain a top priority in consumers’ household budgets relative to discretionary items, reducing the risk to Verizon’s dividend. That dividend recently yielded a hefty 4.2%, making Verizon a top pick for patient investors seeking income. (The Motley Fool has recommended Verizon.)

Ask the Fool

Q: What kind of long-term return should I expect in stocks? – T.D., Lafayette, Indiana

A: You can’t know the exact return you’ll get over any particular period, but the market’s past performance can guide your expectations: Over the 30, 50 and 100 years ending in December 2019, the S&P 500 posted a compounded average annual gain (with dividends reinvested) of between 10% and 11%. If you invested in the S&P 500 over the past 10 to 20 years, though, your average return is likely to have been between 6% and 15%.

So hope for great results, but be prepared for lackluster ones. (To arrive at a “real” return, subtract the rate of inflation, which has historically averaged about 3% annually. That might turn a 10% “nominal” gain into a 7% real one.)

Those returns reflect investments in most of the overall stock market, not in various individual stocks. Individual companies can deliver results that are much better or worse. You can hope to beat the market’s average return by carefully selecting individual stocks or mutual funds, but it’s best for most of us to simply match the market’s return via a low-fee index fund.

Q: How come good news from one company causes its stock to rise, while good news from another one leads to no change? – S.L., Butler, Pennsylvania

A: It depends on what investors have been expecting – because often, expectations are already built into the price.

If investors are expecting a 10% rise in earnings and that’s what they get, there may be little change. If they’re expecting 10% and the company reports a 30% increase, the stock will likely jump. Not all news is really news.

My dumbest investment

My dumbest investment was buying about $25,000 of Titan Medical for around $4 per share – on the advice of my golf buddies. They were convincing, and I believed them. I bought it on a whim – and now it’s hovering around $0.50 per share. – E.G., online

The Fool responds: The stock has fallen even further since you wrote to us.

It’s easy to think of investing in stocks as a game and a gamble, but remember that these are usually our hard-earned dollars we’re investing. You spent $25,000 on a “whim,” based solely on someone’s story. That’s always risky.

Companies such as this one attract investors with compelling stories. Titan Medical, for example, is “focused on computer-assisted robotic surgical technologies for application in MIS” (minimally invasive surgery). That alone might get investors excited, thinking of successful companies in that arena such as Intuitive Surgical, which has seen its shares more than quintuple in value over the past decade. But while Intuitive has years of rising revenue and earnings, Titan does not.

Your first warning was its share price: Stocks trading for less than about $5 per share are penny stocks – notoriously risky and volatile. If you look for articles on the company with Google, you’ll see that it’s running low on cash and might have to put itself up for sale. (The Motley Fool owns shares of and has recommended Intuitive Surgical.)