Over the past 12 months, Verizon Communications Inc. (NYSE:VZ) stock has lost 6% of its value. And in 2017 alone, it’s lost 8% even as the S&P 500 has surged 6% higher. But those gains are all the more reason why you should by Verizon stock now.
Verizon stock has been lagging as the company’s growth has been tepid. The wireless market is saturated and competitive.
In the most recent quarter, Verizon posted a slight earnings miss and a decline in sales. Meanwhile, earnings are barely supposed to inch higher in the next few years — far from the double-digit growth of the half decade prior. In fact, Wall Street’s forward-looking estimates are slowly but surely shrinking with each month.
But the decline in Verizon stock spells opportunity. The company has three solid avenues toward growth and, if none of those pan out, another way to reward loyal investors. Take a look.
Recently, some analysts have suggested that Verizon’s move to offer unlimited data is going to crush its margins. I disagree. Offering unlimited data is more mental than practical; it’s a marketing move — one that puts Verizon back above a competitor like T-Mobile US Inc (NASDAQ:TMUS) — as opposed to a margins-eater.
T-Mobile has been competing mostly with appealing offers, but can’t compete on speed and coverage. Unlimited data tips the scales back to Verizon. At this stage, gaining customers is one of the most important avenues for Verizon to grow, especially as its AOL and landline businesses are dead and buried.
There has been some uncertainty around Verizon’s acquisition of Yahoo due the latter’s data breach. But while that’s a short-term hurdle to deal with, it doesn’t change the appeal of the buy.
As Verizon’s CFO said during the most recent earnings call: “Our pending Yahoo acquisition would further increase our opportunity to scale in the digital media space, with its 1 billion-plus monthly average unique viewers.”
The deal is expected to close in the second quarter, so the April 20 earnings call may have more details that will help regain investor confidence in the buy.
Internet of Things
The most promising part of recent Verizon earnings report has been growth in Internet of Things (IoT) revenue. In the most recent quarter, IoT enjoyed a 21% year-over-year expansion. Meanwhile, including acquisitions, IoT revenues increased more than 60% in fourth-quarter 2016. Verizon expects to sustain this trend to continue, which could drive revenue growth back into the red.
Bottom Line on Verizon Stock
The best part about Verizon stock, though, is that even if none of these growth avenues pan out, the company will still reward loyal investors with a consistent quarterly payout. Verizon paid $9.3 billion in dividends in 2016 and current sports a forward annual dividend yield of almost 5% and plenty of cash to keep that chugging. Verizon boasts $2.88 billion in cash — double its debt as of the most recent quarter.
While Verizon stock has been lagging of late, that softness translates to a sweet yield. And if earnings get back on track due to any of the aforementioned drivers, you can bet investors will have an especially mouth-watering yield on cost.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.