Verizon (NYSE:VZ) really needs to make a massive media acquisition, because the truth is telecom is no longer the place to be. Verizon doesn’t offer anything unique any longer and, therefore, VZ stock has become the worst kind of investment: a commodity.

Think about it. Do you know anyone who shows unending loyalty to their telecom carrier? No. The only thing that matters to cell phone users is price, price and price. That leads to only one thing — declining margins amidst price wars. So, basically, whoever has the lowest price and best marketing wins.

Thus, up until recently, the main consideration with VZ stock was competition with other telecoms.

Then the landscape changed.

Not Your Father’s Phone Company

AT&T, Inc. (NYSE:T) purchased DIRECTV and now is about to close on its acquisition of Time Warner Inc. (NYSE:TWX). Stock analysts and investors are twiddling their thumbs, wondering what Verizon’s CEO is going to do, because without a media play of some kind, nobody seems certain what VZ stock has to offer going forward.

Buying AOL and Yahoo doesn’t count. The thing about AT&T is that its acquisitions not only permit it own content creation, but it can distribute that content via DIRECTV, and bundle everything vertically with AT&T’s core products. VZ stock struggles because it has no strategy like this, and no apparent vision.

Analysts have five year estimates on VZ stock that are not terribly exciting. Annualized earnings-per-share growth is a mere 1.13%. Sprint Corporation (NYSE:S) is at least looking at 5%. VZ stock trades at $49.51 per share, which gives the company a valuation of $202 billion. With about $16 billion in TTM net income — nothing to sneeze at — that puts VZ stock at a P/E ratio of 12.5.

The Truth About VZ Stock

But VZ stock is also loaded with debt. Five years ago, it carried about $50 billion of long-term debt. Today it’s at $105 billion. At least AT&T got DIRECTV and Time Warner for taking on that kind of load. The interest rate is about 4.2%, so it flushes $4.3 billion of debt service down the drain each year.

Verizon’s saving grace is free cash flow, which is the saving grace of most telecom companies. All those customers in the telecom business provide it with a lot of cash flow.

But there’s a growing problem.

Capex has been relatively stable at about $17 billion every year. However, operating income went from $30.6 billion in fiscal year 2014 to $38.9 billion in FY15 and down to $22.7 billion In FY16. The trailing twelve months (TTM) shows $19.7 billion. So, the trend is getting worse, and the decline is due to both declining top-line revenue and increasing SG&A expenses.

And here comes the possible problem: free cash flow is no longer covering the dividend. In FY16, free cash flow was $5.7 billion, but dividends were $9.26 billion. In the TTM, free cash flow has been $3 billion, but dividends totaled $9.2 billion. That’s a huge problem and nobody seems to be sounding the alarm here. Verizon has only $5.6 billion of cash on its balance sheet. From what I can tell, if the trend continues, it is out of cash by end of next year — unless the dividend is cut.

Yet, that 4.73% dividend is the only thing keeping Verizon stock trading this high, I think.

Bottom Line

With VZ stock trading at 12.5 times earnings, with revenue declining, with no clear strategy and with dividend payments vastly outstripping free cash flow, I don’t see how anyone can own Verizon stock at this price.

Sell. Now.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.