Verizon Communications Inc. (NYSE:VZ) has announced that it will be increasing its periodic dividend on the 1st of November to $0.6775, which will be 1.9% higher than last year's comparable payment amount of $0.665. The payment will take the dividend yield to 6.5%, which is in line with the average for the industry.

Check out our latest analysis for Verizon Communications

Verizon Communications' Projected Earnings Seem Likely To Cover Future Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, the dividend made up 80% of cash flows, but a higher proportion of net income. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

The next year is set to see EPS grow by 85.5%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 55% which brings it into quite a comfortable range.

Verizon Communications Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $2.12 in 2014 to the most recent total annual payment of $2.66. This works out to be a compound annual growth rate (CAGR) of approximately 2.3% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Verizon Communications' EPS has declined at around 6.9% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Verizon Communications' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Verizon Communications will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 4 warning signs for Verizon Communications that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.