Verizon (NYSE:VZ) stock could rebound when the company reports its second-quarter earnings on Aug. 1 before the opening bell. However, investors’ focus may not be on the company’s earnings and revenue.
The telecom giant continues to pivot to a near-exclusive focus on wireless. The competitive threat of T-Mobile (NASDAQ:TMUS) has curtailed the profitability of Verizon and its long-time rival, AT&T (NYSE:T). However,VZ’s bet on 5G should redefine both VZ stock and the industry at large.
Expect Few Surprises From Verizon’s Results
Wall Street analysts, on average, predict Verizon’s Q2 earnings per share will come in at $1.20, flat from the same quarter a year earlier. Analysts also believe the company’s revenue will inch up 0.6% to $32.41 billion.
Historically, Verizon usually beats average revenue estimates. While I expect the trend to continue on Aug. 1 , I do not expect VZ’s top line to come in meaningfully above the consensus outlook.
This will probably suit the dividend investors just fine. The annual dividend of $2.41 per share , translating to a yield of 4.3%, of VZ stock appears to be safe. I also expect that the company will announce its 13th straight annual payout increase in September, since Verizon will probably not want to hurt VZ stock price by failing to increase its dividend.
Verizon Forced to Go “All-In” on 5G
At this stage, the dividend has become a reason for the owners of VZ stock to hold onto their shares as they wait for VZ stock price to be boosted by the mass adoption of 5G wireless. I think 5G wireless will become the focus of the earnings report, especially because the company has gone “all-in” on 5G.
As InvestorPlace columnist Aaron Levitt pointed out, Verizon’s purchase of AOL and Yahoo! did not bear fruit. VZ seems to have admitted as much, as it carried out a $4.6 billion writedown of those assets.
The one saving grace for Verizon is that AT&T took on even larger debts to try to profit from the dying pay-TV business. But VZ is also heavily indebted.
Verizon’s balance sheet,however, has improved. Specifically, its $105 billion of long-term debt fell by $7.75 billion over the last year. However, the debt places a tremendous burden on Verizon, which has $55.85 billion of stockholders’ equity. Much of that debt came from spending tens in billions on building nationwide 5G networks. Consequently, both companies have become all-in bets on 5G.
The Future of Tech Depends on Verizon’s Success
As Levitt noted, VZ stock is “risky.” Nonetheless, I see the shares as a good bet. 5G will increase wireless speeds by about 20-fold. Much like the expansion of broadband depended on the fiber buildouts of 20 years ago, the advancement of artificial intelligence (AI), virtual reality (VR), and The Internet of Things (IoT) will rely on 5G wireless capabilities.
Verizon has led the way in 5G. As I pointed out in April, the company launched its 5G networks in select markets that month, coming in ahead of both AT&T and T-Mobile.
Moreover, the massive cost of this infrastructure investment will make it difficult for other competitors to enter the business. Furthermore, T-Mobile’s debt should preclude it from starting the type of price war it successfully waged in the 4G world. That should help ease worries about Verizon’s profit growth and debts, in turn reducing fears about VZ stock .
Should Investors Buy VZ Stock?
Verizon stock has become high-risk, but VZ stock is a good long-term bet, since the future of tech depends on 5G. The dividend of Verizon stock is stable, and its Q2 results are likely to be little changed from their levels in Q2 of 2018
But the future of VZ stock depends on its “all-in” bet on 5G wireless. Still, I think Verizon stock is like a card game in which the gambler is practically seeing the cards beforehand. Like the fiber buildout of 20 years ago, much of the progress of tech depends on Verizon stock, making a winning outcome nearly certain.
Verizon stock price has taken 17 years to double, so I do not see VZ stock as a growth investment. However, because Verizon’s 5G network will change the tech industry as we know it. investors looking for dividend income should not hesitate to buy VZ stock ahead of Verizon’s earnings.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
