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Verizon Wireless: Buy It. Hold It. Love It.

August 28, 2011 | About:

In today’s rough market environment, investors are scrambling to find the best investments to keep their portfolios afloat. With debt crises, a congress seemingly incapable of agreeing on any kind of legislation, and now speculation of yet another quantitative easing program, finding the smartest play has become something of a daunting task.

Enter Verizon Wireless (VZ). Verizon is the largest telecom company in the U.S. (by subscribers), beating out AT&T and T-Mobile with over 108 million users in the second quarter of 2011 (though the acquisition of T-Mobile by AT&T will put it back on top when the deal officially goes through). Founded in 2000, the company is home to over tens of thousands of employees and is one of the biggest brand name investments for domestic traders, as their stock is one of the best value plays currently on the market.

So what makes Verizon so great? Well, for starters, consider the industry. In a world where most people can’t go 15 minutes without checking their cell phone, Verizon is there to reap the rewards. Now, we can do just about everything from our smartphone devices, and our addiction to our phones will not be ending anytime soon, creating a solid and stable long-term outlook for the company. Looking to the future, the company will be steadily rolling our its 4G LTE program over the next few months, ensuring faster data for all users, and putting the company on top with widespread 4G for the country.

Stock Analysis

Looking at the most important part of this company and its stock, investors get a whole new view of Verizon. For starters, one of the most important things to notice is its robust dividend yield, which is currently sitting at 5.50%. While this figure will fluctuate based on stock price, it usually ranges in the high 4% to 5% range. It can be very easy for investors to overlook the power of a dividend yield, as they shun the company for likely having hit its peak growth. But consider this, “according to Standard & Poor's, the dividend component was responsible for 44% of the total return of the last 80 years” of the S&P 500, writes Simple Stock Investing. Given the fact that we just exited what many are calling the “Lost Decade,” where the S&P finished basically flat over a ten-year period, a dividend stock makes perfect sense for a value play.

Dividends come with a laundry list of other benefits. They help battle inflation, as yields tend to rise as the dollar loses its value. Also, a dividend payment is a key indicator of a healthy company; while accountants can cook the books to make a company seem fine (see Enron), nothing says business is going great quite like a cold hard cash payment to investors.

Moving on to VZ’s specifics, let's consider its price. The stock is currently trading in the upper ranges of $35. The stock itself struggled at the end of 2010 (along with the rest of the telecom sector) only to shoot back up in 2011 to now feature a nice stability in price, as it has been generally between the $35 and $38 range for the past few months. With a stable stock price and a juicy yield, VZ makes for a great laissez-faire investment; you can buy it, and walk away without having to worry about any major snags in the business.

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The stock is also extremely liquid, with a market cap of over $100 billion and an average trading volume well over 17 million, making it easy to sell out should you ever decide to nix it from your portfolio. Digging a bit deeper, the firm has a current P/E of 15.96 and a steady, but low, quarterly growth just over 2%. Most other figures look solid; the company has met three of their last four earnings estimates and has well over $6 billion in cash.

When it comes to downsides, two stand out: debt and payout ratio. First off, VZ holds a current debt of almost $54 billion, leading to a debt/equity ratio of 1.37 a relatively high figure. Also consider that VZ has a high payout ratio of just over 100%, which may be unsustainable over the long-term. This will likely mean that the dividend yield will see a small retraction in coming years, though the company will continue to pay out an attractive yield as many telecom firms tend to do.

With the largest subscriber base in the U.S., and after cannibalizing the coveted iPhone from AT&T, the path seems clear for Verizon to continue ahead as the top dog. For investors looking for a value play, this company has a stable background with a strong yield to boost portfolio returns in even the most uncertain environments. Verizon will be around for a considerable future, and demands a second look for your set of holdings. But don’t just take my word for it, I put my money where my mouth is — I am long VZ.

Disclosure: Chart courtesy of Barchart. Long VZ.


Rating: 2.1/5 (18 votes)

Comments

hschacht
Hschacht - 2 years ago
Why by VZ when you can buy VOD and just get Wireless?
batbeer2
Batbeer2 premium member - 2 years ago
>> Enter Verizon Wireless (VZ).

Ehm.... Verizon Wireless is not VZ. VZ is the ticker symbol for Verizon communications.

Verizon Wireless aka Cellco has $ 6 B of debt and $ 15B of GAAP earnings.

The company pays a $ 10B dividend making the payout ratio 66 %.

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