Verizon Communications is oversold

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The DividendRank formula at Dividend Channel ranks a coverage universe of thousands of dividend stocks, according to a proprietary formula designed to identify those stocks that combine two key characteristics: strong fundamentals and a valuation that looks cheap. Verizon Communications is currently in a prime position, in the top 10% of the coverage universe, suggesting it’s one of the most “interesting” ideas worthy of further investor scrutiny.

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But the fact that Verizon Communications Inc is an even more interesting and topical stock to watch is the fact that the shares of VZ entered oversold territory during trading on Wednesday and switched hands for just $40.20 a share. We define oversold territory using the Relative Strength Index, or RSI, a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered oversold if its RSI value is below 30 drops.

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In the case of Verizon Communications Inc, the RSI value has reached 29.4 – in comparison, the universe of dividend stocks backed by Dividend Channel currently has an average RSI of 44.0. A falling stock price — all else being equal — creates a better opportunity for dividend investors to earn higher returns. Indeed, VZ’s recent annualized dividend of 2.61/share (currently paid in quarterly installments) equates to an annual return of 6.43% based on its recent share price of $40.59.

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A bullish investor might see VZ’s 29.4 RSI value today as a sign that recent heavy sells are exhausting themselves and begin to look for buy-side entry options. One of the fundamental data points dividend investors should examine to decide if they are bullish on VZ is dividend history. In general, dividends are not always predictable; but looking at the historical chart below will help you assess whether the most recent dividend is likely to continue.

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