Verizon Communications Inc. (NYSE:VZ), a major player in the telecom sector, has recently gained attention as one of the highest-yielding stocks on the Dow Jones Industrial Average ($DOWI) following a dividend cut by Walgreens Boots Alliance (NASDAQ:WBA). This analysis takes a closer look at Verizon’s profile, strategic moves, and financial performance to assess whether its 7% yield makes it an attractive investment for income-focused investors.
About Verizon
Verizon, formed through the merger of Bell Atlantic and GTE Corp at the turn of the millennium, is a global telecommunications giant providing wireless, internet, and business solutions. With a massive market cap of $159.34 billion, the company operates through two key segments: Verizon Consumer Group and Verizon Business Group. Verizon’s extensive 5G coverage, reaching 98% in the U.S., has positioned it as a dominant force in the industry.
The company’s strategic initiatives, such as the popular myPlan offering and investments in the C-band spectrum for 5G services, contribute to its market dominance. Verizon aims to cover 250 million people with 5G service by the end of 2024.
Verizon Stock Performance and Valuation
While Verizon stock has declined by 7.7% over the past year, its dividend yield now stands at an appealing 7.02%, even surpassing that of rival AT&T (T). Verizon has a track record of raising its dividend for the past 19 years, supported by a payout ratio of around 55% and robust free cash flow levels.
From a valuation perspective, Verizon appears attractively priced. The stock’s forward price/earnings ratio is 8.08, the price/book is 1.61, and the price/cash flow is 4.29. These metrics not only represent a discount compared to communication sector medians but also fall below Verizon’s five-year averages.
Verizon’s Financial Performance
Verizon’s Q3 2023 results exceeded Wall Street expectations, with operating revenues at $33.34 billion and EPS of $1.22 beating consensus estimates. The company reported a fourth consecutive quarter of impressive broadband net additions, reaching a total of 10.3 million broadband subscribers.
Despite high debt levels of $122.2 billion, Verizon showcased its debt reduction efforts by repaying $2.6 billion in Q3. The company’s strong cash-generating capabilities were evident as Q3 free cash flow surpassed consensus estimates by approximately $1.3 billion. Additionally, Verizon raised its full-year free cash flow forecast.
Analyst Outlook
Analysts maintain an optimistic outlook for Verizon, with a consensus rating of “Moderate Buy” and a mean target price of $41.69, implying an 8.1% upside potential. Out of 19 analysts covering the stock, 6 recommend a “Strong Buy,” 3 suggest a “Moderate Buy,” and 10 advocate a “Hold.”
In conclusion, Verizon’s 7% yield, combined with its strategic positioning, financial performance, and positive analyst sentiment, makes it an attractive consideration for income investors seeking a reliable dividend stream from the telecom sector.
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