Verizon Just Gave Good News to Income Investors Who Love Its Ultra-High Dividend Yield

If you invest in a stock primarily for its dividend, you're probably a long-term investor, since most U.S. companies only pay dividends quarterly.

As a dividend stock investor, during earnings season, I often feel like a business partner awaiting an update on my company's prospects. Many people invest in Verizon Communications (NYSE: VZ) for its generous dividend, which yields just shy of 7% at the current share price.

Of course, the most pressing concern of any dividend investor, especially when talking about such high dividend yields, is whether they can count on those payouts being maintained at their current levels or better. Particularly, retired investors oftentimes are counting on their dividend checks to provide income to help pay their expenses.

Verizon recently reported its third-quarter results, and the telecom giant delivered some excellent news for those who love its ultra-high 7% yield.

Image source: Verizon Communications

Robust cash flow supports a growing dividend

Investors may be aware already that in September, Verizon declared its 19th consecutive annual dividend increase. The news I'm focusing on now is the robust cash flow the company unveiled in its third-quarter earnings report.

More specifically, Verizon has generated $15.8 billion in free cash flow through the first nine months of 2025, up from $14.5 billion during the same period of 2024.

Here's why that's important.

When you get a dividend deposited into your account each quarter, it's cold, hard cash, and that's a straightforward expense for the payer. So, the best way to gauge whether a company can afford the dividend it has been distributing is to look at its free cash flow.

Verizon's management anticipates that the company will generate between $19.5 billion and $20.5 billion for the year. The company has spent a total of $8.5 billion on dividends through the first three quarters of 2025, so if you annualize that, it will pay out roughly $11.3 billion for the entire year.

So it's clear that Verizon's free cash flow will be more than enough to cover its dividend expenses. It'll have a dividend payout ratio of about 58% of cash flow, even at the low end of guidance.

Ultra-high dividend yields aren't always a good thing

It's essential to be a little skeptical whenever you're considering stocks with outsized dividend yields. Remember, management sets the dividend amount, but the yield depends on how the market trades the stock. The lower the share price, the higher the yield.

Oftentimes, higher yields signal higher risks, because they can be the result of a beaten-down share price. Perhaps there are problems in the underlying business, or perhaps the company can't afford to keep paying the dividend at its current level. In such cases, the stocks can be yield traps, and can lead to steep investment losses if the company flounders or cuts its dividend.

While Verizon's dividend is high, it's clearly backed by strong cash flows and a low payout ratio. Investors can confidently hold the stock and collect that juicy dividend income.

Image source: Getty Images

No, Verizon is no yield trap

So, why is Verizon's yield so high? Well, sometimes stocks can carry high yields if the company isn't growing fast. It's the market's way of demanding a higher return on investment. If there isn't much upside from capital appreciation, a better dividend yield helps compensate for that.

That applies in Verizon's case. The company grew its operating revenue by just 1.5% year over year in the third quarter. Wall Street analysts expect Verizon's earnings to grow by only 2.5% annually over the next three to five years.

Unfortunately, the wireless industry in the United States is highly competitive among the few primary players. The market is also mature -- the vast majority of consumers already own smartphones. Verizon is unlikely to grow rapidly anytime soon.

Such slow growth means Verizon probably isn't a good stock holding for everyone. That said, investors who will appreciate its 7% yield can celebrate the company's strong cash flow generation and its 19th consecutive annual dividend increase. Based on the company's comfortable payout ratio, there are probably many more to come.

Plenty of investors will be satisfied to own a high-yield stock that simply maintains its payout, so Verizon's ability to raise its dividend on top of a starting 7% yield could make it a potential top pick for any income-focused investor.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.