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Verizon Stock: The Good, Bad & Ugly Of It

Posted On August 22, 2017 4:55 pm
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A black and red Verizon logo

Last month, Verizon Communications Inc. (NYSE:VZ) reported a decent second quarter report, which surpassed analysts’ estimates for revenues — great news for those owning Verizon stock.

Earnings were in-line with the Street’s consensus. The telecom company earned $0.96 per share on $30.55 billion, versus the consensus estimate of $0.96 EPS and $29.91 billion revenue.  

But Verizon is under pressure from T-Mobile, which has perhaps the best growth story in the telecom sector. In 2016, T-Mobile added over 8 million, while revenue in the period increased by a whopping 16%. On the other hand, Verizon’s revenue fell by 4.3% in 2016. In the first half of 2017, Verizon’s revenue plummeted by 3.7%.

As a desperate measure to compete with T-Mobile and other competitors, Verizon Communications Inc. (NYSE:VZ) recently announced an unlimited data plan. But, analysts think that this step will crush the already thin wireless margins.

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Verizon Communications Inc. (NYSE:VZ) is operating in a market which is best described as an oligopoly. The telecom sector has an intense competition. Verizon’s competitors keep cutting their prices and offer deep discounts in smartphone deals.  Verizon refinances its huge debts, and analysts think that the rising interest rates will dent the company’s finances in the near future.  

However, investors haven’t lost all hope on Verizon.

In the second quarter, the company added 590,000 postpaid smartphone customers.

Verizon Communications Inc. (NYSE:VZ) started looking for alternative revenue streams after evaluating a tough competition in the telecom sector a few years ago. Verizon Communications Inc. (NYSE:VZ) has its eyes set on the lucrative Internet of Things (IoT) segment, whose market worth is expected to reach $267 billion by 2020.

Verizon acquired Fleetmatics for $2.5 billion in 2016. The company also bought SaaS software and GPS technology company Telogis to enter the business of connected cars. In 2016, Verizon’s IoT revenue increased 39% to reach $1 billion.

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Verzion’s blockbuster acquisition of Yahoo, which was completed in June, gives the telecom company a variety of options to leverage the highly profitable media industry.

But, the top catalyst for Verizon Communications Inc. (NYSE:VZ) is 5G. The company is the pioneer in the 5G technology in the US. Verizon started conducting 5G trials in the US in 2016, and plans to start a 5G pilot program in 11 cities this year.  According to Verizon’s own estimates, 5G industry will have a total worth of $12.3 trillion by 2035.

Verizon also acquired telecommunications company Straight Path Communications for $3.1 billion to get more spectrum before a nationwide launch of 5G.  

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Verizon is an excellent investment for income investors. The stock has a solid dividend yield of 4.8%. Verizon Communications Inc. (NYSE:VZ) has increased its dividend yield consecutively in the last 10 years. However, the payout ratio growth is declining at a worrisome rate. In 2016, Verizon increased its dividend by 2.2%, compared to a 2.7% rise in 2015 and 3.8% increase in 2014.

a Verizon Dividend and Payout Ratio Chart from 2013 to 2017

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