Verizon Communications (NYSE: VZ) is turning heads in the investment world, thanks to its substantial dividend yield, undervalued stock price, and strategic initiatives aimed at driving growth. Let’s take a closer look at why this telecom giant could be worth adding to your watchlist.
A High-Yield Dividend Worth Noting
One of Verizon’s standout features is its impressive dividend yield, currently exceeding 7%. This is significantly higher than the S&P 500's average of around 1.2%, making it a potential income-generating option for dividend-focused investors. Unlike many high-yield stocks that come with elevated risks, Verizon boasts a solid financial foundation.
In the first nine months of last year, Verizon generated $26.5 billion in cash flow from operations, covering its $12 billion in capital expenditures with room to spare. This surplus funded its $8.2 billion in dividend payments and allowed for ongoing debt reduction, with the company improving its leverage ratio to 2.5.
Positioning for Growth with Strategic Moves
Verizon is making strategic investments to address challenges and enhance its competitive position. A notable example is its $20 billion all-cash acquisition of Frontier Communications, which aims to expand Verizon’s fiber network to 25 million premises. This move is expected to generate $500 million in annual cost synergies and immediately boost earnings, setting the stage for long-term growth.
Although this acquisition will initially increase the company’s leverage, Verizon’s management expects the resulting growth in free cash flow to support rapid debt reduction. By 2027, the company aims to achieve a leverage target between 1.75 and 2.0, reinforcing its financial stability.
Broadband and 5G Expansion
Verizon’s investments in broadband and 5G networks are starting to pay off. The company recently reached its fixed wireless subscriber goal 15 months ahead of schedule and reported double-digit growth in broadband connections during the third quarter. These achievements reflect Verizon’s focus on capitalizing on high-growth areas and strengthening its market presence.
This progress positions Verizon to resume profitable growth, which could enhance its ability to continue its 18-year streak of annual dividend increases—the longest in the U.S. telecom industry.
Undervalued and Poised for Recovery?
Despite its strengths, Verizon’s stock has faced challenges, declining nearly 30% over the past three years. This has left the stock trading at just 8 times forward earnings, a significant discount compared to the broader market’s forward P/E of over 23. For investors who prioritize value, this low valuation, coupled with a high dividend yield, makes Verizon a potentially attractive option.
As Verizon’s earnings growth accelerates, the stock could see a recovery in its price, creating the potential for strong total returns. For those interested in undervalued dividend-paying stocks with a stable financial foundation and growth potential, Verizon might be worth a closer look.
Final Thoughts
Verizon is navigating a period of transformation and growth. With its strong dividend, strategic acquisitions, and focus on network expansion, it stands out as a company with a compelling investment story. While no stock is without risks, Verizon’s current valuation and future prospects make it an interesting stock to monitor closely.
