As one of the darlings of the dividend crowd, Verizon shares are up 27% since its one-year low in July. Last month, Verizon raised its dividend to 48.75 cents a share, extending its streak of dividend increases to four years in a row.
But with a big payment to joint venture partner Vodafone (VOD) looming and an ongoing debate about paying down the $57.4 billion in debt on the books, Verizon has some pressing decisions to make about how it spends its cash.
The Bernstein downgrade was based on "a stretched valuation coupled with risks to its future dividend coverage," wrote analyst Craig Moffett in his research note. "In contrast," he added, "we expect AT&T (T - Get Report) to amply cover its dividend, as well as commit to regular dividend growth."Just as sales growth attracts investors, so too does dividend growth. Without bigger and bigger piles of that sweet cash candy, investors may look elsewhere for returns. While concerns about dividend growth are the thrust of the Bernstein report, there's also a bit of iPhone bubble in the stock that Moffett suspects may have limited upside from here. People close to Apple (AAPL - Get Report) have assured a few highly-positioned media outlets that Verizon will be carrying the iPhone early next year. The news of a Verizon iPhone has helped add a few bucks to Verizon's valuation -- or as some say, it's priced in. For pessimists, this can mean that Verizon has nowhere to go but down from here. --Written by Scott Moritz in New York.
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