I’d buy 1,924 shares of this US stock for £4,000 in passive income

This US stock has increased dividend payouts every year since 2007. A recent price drop could make it a prime candidate for passive income.

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American communications giant Verizon (NYSE:VZ) is one of the top dividend stocks in the US. At its current price, I think it could be an excellent investment for me to generate consistent passive income.

The stock price is currently down over 18% in the past five years, and at around $39 a share, it’s trading well below its 2019 peak of $62.

The drop is primarily attributed to weak subscriber growth in 2022 and, to me, seems exaggerated. As a result of the price drop, the company now has an attractive price-to-earnings (P/E) ratio of 7.76. That suggests it’s a good value stock for me to buy now.

Rising dividends

Despite the Verizon share price dropping over the last few years, dividends have been consistently rising. The company has increased its payouts every year since 2007.

At the current price, the forward dividend yield for 2023 is an attractive 6.7%. That represents a significant percentage increase compared to recent years.

In 2011, the dividend payout per share was $1.97. That’s also the last year, until now, when Verizon was regularly priced under $39. The dividend total for 2023 is projected to be $2.61, based on the first quarter payment of $0.6525.

Therefore, for the same outlay as in 2011, I can expect an extra 1.7% return from their dividends.

Furthermore, in March, CEO Hans Vestberg committed the company to “delivering long term shareholder value“. So I’m not expecting the company’s dividends to break the 16-year increase streak any time soon.

How much would I need to invest?

If I were to buy Verizon shares now, I’d want to target a level of passive income that would help me long term.

Currently, 1,924 shares would generate just over $5,000 — or over £4,000 — of passive income. Paid out quarterly, that works out to a nice sum of £1,000 every three months.

Of course, while now may be a good time to buy, 1,924 shares at $39 would cost $75,036 (£60,426). That’s quite a significant amount for me to invest all at once.

That’s why, if I were to buy Verizon shares today, I would begin by purchasing in multiples of 15 or 60. That’s how many shares I would need to own, at today’s price, to use the dividends to purchase more.

At the current yield, 15 shares would give me a $39 dividend and allow me to add a new share yearly. Alternatively, 60 shares would give me the same $39 payout every quarter, which would enable me to reinvest for a new share every three months.

As I’m around 20 years from retirement, I’d have time to build towards a goal of £4,000 in passive income, or even more. I don’t need passive income right now, so if I were to buy shares, I’d want to reinvest the dividend every quarter.

That would help me grow my passive income earnings until retirement, even if I didn’t buy more shares. However, I’d still have to invest regular amounts to reach my goal.

As we are moving into the new tax year for Stocks and Shares ISAs, I have other investing priorities right now. However, I’ll be revisiting Verizon in the future if the price-to-dividend ratio is still attractive when I have some spare cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Matt Cook has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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