Should You Buy the Highest-Yielding Dow Stock After the Market Sell-Off?

The markets have gotten turbulent, with the Dow Jones Industrial Average (DJINDICES: ^DJI) off by a touch more than 11% from its early-year peak. That means that this index is officially in correction territory in 2025. If you're looking for high-yield stocks, this sell-off could be your chance to hunt for new investment opportunities.

What about the highest-yielding stock in the Dow Industrials? Is it a buy during this sell-off?

What does the highest-yielding Dow component do?

The highest-yielding stock in the Dow Jones Industrial Average is Verizon Communications (NYSE: VZ). It does a lot of things, but its core business is providing telecommunications services. It's one of a small number of cellular service companies that together have an effective oligopoly in the United States. There are good things and bad things to consider here.

One thing on the positive side is the subscription model. Verizon customers pay a modest monthly fee for continued access to a service that they probably view as essential. At the end of 2024, the company had 115 million wireless retail connections, with another 31 million business connections.

Although each individual customer's bill is modest, when you add all the revenue up, the total is quite large. In 2024, the company generated nearly $135 billion in revenue. Most of that income is annuity-like in nature, as well, given the subscription model and the services being provided. Verizon has a very attractive business in many ways.

That said, roughly 75% of Verizon's revenue comes from the retail side of its business. Retail customers can be fickle, jumping from provider to provider to get the best price and service combination. So while Verizon has a strong foundation, it operates in a competitive market. There's only so much opportunity for price increases. Even more notably, the telecom giant has to make sure that its service remains high-quality.

Essentially, Verizon always spends a great deal of money to maintain and improve its offerings. Not doing so could put it at a competitive disadvantage, and that, in turn, would lead customers to move to competing services. In 2024, the company generated nearly $37 billion in cash flow and spent roughly 45% of that on capital investments.

Data by YCharts.

The need for material capital spending, including buying the right to use certain parts of the broadband spectrum, has resulted in a material amount of debt sitting on Verizon's balance sheet. At the end of 2024, the company's debt-to-equity ratio was nearly 1.5x, which is higher than its closest peers'. That puts Verizon at a bit of a disadvantage, given the high levels of ongoing spending needed to maintain its competitive position.

Is Verizon worth buying?

Verizon has a very large dividend yield of 6.2%. That will likely attract income investors to the stock. It also generates more than enough cash flow to cover that dividend, with a cash dividend payout ratio of around 60%. Only, as with the leverage issue, Verizon is the weakest player, paying out more of its free cash flow as dividends than its peers -- materially more, in fact, as the chart below highlights.

Data by YCharts.

With elevated leverage, a material dividend obligation, and modest pricing power, Verizon's dividend yield is likely to make up the vast majority of an investor's return over time. Indeed, the annualized dividend increase over the past decade was a rather disappointing 2%. That's not even enough to keep up with the historical growth rate of inflation.

Things aren't likely to get any better going forward, either. Verizon's outlook for 2025 is for revenue growth of between 2% and 2.8% and adjusted earnings growth of 3%. That's not a recipe for a huge dividend increase.

Who should buy Verizon?

Add it all up, and Verizon is likely to appeal only to conservative investors who are focused on maximizing the current income they generate from their portfolios. That's not a bad thing, but the nature of the business backing the dividend limits the appeal of Verizon as an investment. You can probably count on the dividend getting paid every quarter, but you probably shouldn't count on much more than that.

Should you invest $1,000 in Verizon Communications right now?

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.