Verizon Communications (NYSE:VZ) is a provider of communications, information and entertainment products and services to consumers, businesses and governmental agencies. Verizon Wireless has a huge competitive moat in the U.S. wireless business, investing billions of dollars in spectrum and its network, something that's nearly impossible for competitors to replicate.
Performance So Far
It has a strong brand name and competitive advantages that keep rivals at bay. Providing nationwide cable, Internet and phone service is nearly impossible for newcomers due to the extremely high costs of building out a network. This means barriers to entry are very high, resulting in reliable profits. Indeed, Verizon generates more than $20 billion in free cash flow annually. It distributed nearly $6 billion in dividends to shareholders last year, and has been upping its payout annually for years.
In addition, Verizon has a clear catalyst for continued future growth, thanks to its highly profitable Verizon Wireless business, which is the largest and most profitable wireless carrier in the United States. In its last reported quarter, Verizon Wireless increased service revenue by 7.5 percent, outpacing the overall company’s 4.8 percent revenue growth. The wireless business should provide plenty of cash flow to support the company’s hefty dividend for a long time.
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- VZ 15-Year Financial Data
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With its steady growth and a price-to-earnings (P/E) ratio recently near 11 (well below the S&P 500’s 18), Verizon stock is compellingly priced and worth considering.
Verizon's $130 billion deal to take over of all of Verizon Wireless is helping lift its profit. The largest US cellphone carrier completed its acquisition of the 45 per cent stake in its wireless division from British mobile phone carrier Vodafone Group PLC in February. Verizon Communications said that its first-quarter net income rose 23 per cent to $5.99 billion, or $1.15 per share.
Verizon added 539,000 postpaid subscribers on the quarter, which is a solid number. Even more importantly, Verizon’s postpaid churn, or the rate at which customers come and go, remained at a very low 1.07%.
Verizon Wireless completed $245 million in wireless network enhancements across New England in 2013, increasing the company's regional network investment to $3.6 billion since its inception in 2000. Verizon Wireless operates the nation's largest 4G LTE network, which is twice the size geographically of any other 4G LTE network in the U.S. Available to nearly 305 million people in more than 500 markets across the country, the Verizon Wireless network covers more than 97 percent of the U.S. population.
Verizon is taking all the right steps to strike more deals with its partners. The deal with Netflix (NASDAQ:NFLX) is a step in the right direction. Verizon is already renowned for its better speed and performance and the Netflix deal just confirms this belief.
Verizon is seeing robust growth in wireless contracts and residential broadband Internet. In eight of the last nine quarters, the wireless communications giant has posted double digit growth in net income. Also, because Verizon now has full ownership of Verizon Wireless after purchasing the remaining 45% stake from Vodafone (NASDAQ:VOD), it should be able to boost its sales going forward on the back of integration synergies.
Verizon is making consistent investments in its network and platforms to support its products and services. The telecom giant is looking to deliver high network quality and reliability to offer a rich customer experience.
Verizon is making solid investments in the business to upgrade its network and provide better services to customers. Verizon's fundamentals are strong, and the company can continue increasing its dividend in the future.
Verizon has a strong dividend yield of 4.30%, and the payout ratio is quite reasonable at 47%. Since Verizon is generating a huge amount of cash flow and is also adding a good number of subscribers for its services, it should be able to increase its dividend going forward.