Verizon Communications Inc. Stock is a Dividend Investor’s Dream

There's a bull case for why Verizon is primed for growth

By Chris MacDonald, InvestorPlace Contributor

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Verizon Communications Inc. (NYSE:VZ) is a difficult company for many long-term investors to own due to the tectonic plates of the wireless and telecommunications industry that remain in a constantly shifting state. VZ stock is down more than 10% going into the final two months of the year.

Verizon Communications Inc. Stock is a Dividend Investor's Dream
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A series of price wars has ensued between VZ and its largest competitors in a bid to stave off what would has become an all-out assault on traditional television, cable, and FiOS video providers. This past quarter, VZ lost 18,000 FiOS customers, 5% more than analyst estimates for the segment.

With margin erosion and long-term headwinds prevailing for many of the core businesses operated by VZ, it can be difficult to put a bull case together for the company.

Investors have begun to flee VZ stock in favor of companies with perceived advantages in their sectors, largely ignoring many of the key growth initiatives which stand to create a new VZ more in line with what consumers are looking for and where consumers are spending their money.

In this article, I’m going to discuss a few of the factors I believe will set VZ apart from its competitors, and why VZ remains very attractively valued when considering the company’s dividend and future cash flow generating abilities.

Where’s the Long-Term Value in Verizon

VZ’s core product offerings have done well of late, and despite dropping more than 10% since Jan. 1, VZ has posted a solid rally since late summer when the company dipped below $43 per share on news that subscriber growth outpaced analyst expectations and was among the best of its peers. During the company’s fiscal third quarter, more than 600,000 wireless customers were added to VZ’s platform, a number which was boosted (at least temporarily) by all-you-can-use unlimited data plans introduced earlier this year.

Besides spurring higher-than-expected top- and bottom-line performances for the previous quarter, what is particularly notable is that this increase is likely to result in some investors giving VZ more rope as the company rolls out new initiatives linked to its recent acquisitions of Yahoo! Inc. and AOL, Inc. (which have now been rolled into Oath). The goal will be for VZ to grow its online advertising business to challenge rivals Alphabet Inc (NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB) in this high-margin space, an attractive opportunity which deserves to be fairly valued.

VZ will also continue its search for a partner in its bid to launch an online television service, a project which has been delayed several times already and may continue to be postponed. With the devil in the details in rolling out a massive project like this, I anticipate many investors will sleep better knowing VZ’s management team is taking its time in rolling this out to avoid a failure which may be catastrophic for the organization. This will be the major “make-or-break” project for VZ in the upcoming quarters.

VZ Still a Best-of-the-Dow

In terms of fundamentals, VZ remains one of the best companies currently in the Dow Jones Industrial Average. It is hard to miss VZ stock’s massive dividend of nearly 5%, a dividend which has grown as the stock’s value has declined in the last 10 months.

In terms of valuation, VZ remains cheaply valued at approximately 10x operating cash flow. While the company does carry a large debt load, as is commonplace in the industry, its recent acquisitions have not served its liquidity ratios well, and management will need to continue to monitor the company’s debt load accordingly.

 

With top-line numbers continuing to improve and the company’s gross and net margins remaining very robust, it is important to note that the majority of analysts believe Verizon remains in a solid position to take advantage of future capital intensive opportunities at its current state.

Bottom Line on VZ Stock

Verizon is a company with excellent potential for growth in a mature industry with relatively simple cash flows to value looking forward. With analyst estimates for growth somewhat muted, and perhaps not encompassing many of the growth initiatives underway, I expect room for increased valuation multiple expansion as market sentiment for VZ stock becomes increasingly more bullish.

A strong balance sheet supports a management team with a proven track record (three decades’ worth) of returning value to shareholders in the form of a robust and growing dividend. Long-term income-focused investors should consider picking up shares of VZ on any dips moving forward as the company continues its transition toward utilizing its asset base more effectively.

As of this writing, Chris MacDonald did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/verizon-communications-inc-stock-is-a-dividend-investors-dream/.

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