With over 150 million subscribers, Verizon Communications Inc [NYSE:VZ] is one of the largest wireless communications companies in the world, and that’s just one corporate arm.
We can hear them now because the company has a history of prolific marketing, subscriber exclusive devices, and a blazing fast data network. In fact, the need for wireless and wired data even survived the covid-19 lockdowns, leaving market analysts with one question – is Verizon a good dividend stock?
The 2010s saw Verizon’s value mostly stabilize, as it competes with a slew of other companies over the fifth generation (5G) of wireless services. It has a large coverage network and still runs all the hard-wired telephone, data, and cable lines leftover from the breakup of the Bell System into the seven Baby Bells. In fact, it’s one of only three surviving Baby Bell companies, alongside AT&T and CenturyLink.
Let’s dive into Verizon’s stock to determine how investors have fared in the past and the company’s vision for the future.
Is Verizon Dividend a Value Trap?
Verizon is more than just a wireless carrier – in fact, Verizon Wireless is just one of many brands under the Verizon umbrella. Its media division (formerly known as Oath Inc) includes brands like AOL, Yahoo!, TechCrunch, Engadget, and HuffPost, among others.
Its business enterprise division consists of data networks and other assets obtained through its acquisition of MCI Communications and includes everything from managed IT to cloud computing, cybersecurity, and Internet of Things (IoT) services.
Its wireless business is no slouch either. Verizon’s network is the backbone for carriers like Tracfone, Straight Talk, Net10, and Xfinity Mobile, among others. Despite this wide footprint, many wonder if the stock peaked in value.
It certainly hasn’t been destroyed by the 2020 novel coronavirus lockdowns – if anything, it proved the company is an essential business that provides essential services.
It’s a public utility whose usefulness is only growing with the direction of the economy. Verizon also has great financials and a healthy cash reserve it’s investing in the 5G buildout. This is why conservative investors depend on it for steady dividend payments. Yet it never seems to breakout over the $60 mark, and the heavier competition in 5G may stunt the company’s growth.
Prices for data access are being driven down, and carriers are having to include a lot of extras as rivals like AT&T and Comcast secure exclusive partnerships with music and video streaming services under their media umbrellas.
This leaves analysts understandably curious if its dividend yield of 4.14% is a value trap. Let’s explore Verizon’s track record and its positioning in the current market to answer this question.
Why Buy Verizon?
As mentioned above, Verizon has vested interests in key sectors of internet technology. While it doesn’t make its own phones or computers, it does control a large portion of both wired and wireless data access for consumers, enterprises, and municipalities.
It also controls large media brands and has lucrative government contracts, such as its partnership with the Marine Corps Air Station Miramar to research and develop 5G-enabled defense applications.
If you’re not a telephony fanboy, 5G is the latest cellular technology that brings faster speeds over a wider coverage area, while fixing latency issues to bring mobile wireless communications closer to the speed and reliability of landlines.
Current 4G speeds are 150Mbps, with 4G LTE-A speeds reaching as high as 1Gbps, although the real-life speeds end up closer to 15Mbps in the field. Not only are Verizon’s 5G Ultra-Wide Band (UWB) speeds estimated to reach up to 10Gbps (50Mbps averages), but latency drops from 50ms to 1ms, leading to better service.
Of course, this pales in comparison to the 800 Gbps Verizon successfully tested over its live fiber network with new partner Infinera [NASDAQ:INFN].
The 800G fiber infrastructure it’s building today will serve as the backbone of its global data network for the next decade. Verizon isn’t reinventing the wheel – it’s simply upgrading its existing assets to serve a more fast-paced, connected world.
Should You Sell Verizon Stock?
Although it has a lot going for it, you may consider selling Verizon. Its media business pales in comparison to that of AT&T’s WarnerMedia or Comcast’s NBCUniversal, and its value far exceeds both.
The company’s spending on infrastructure isn’t coming with a boost in subscribers either – the company lost 68,000 subscribers and pulled its 2020 revenue forecasts during its second quarter earnings call.
The shutdown of 70% of Verizon’s retail stores clearly put a dent in its revenues and brand image.
The accelerated push towards virtual work also puts a strain on the company’s fiber networks, as data is redistributed to households. Keep in mind that just because you’re not physically at work doesn’t mean the company’s data network isn’t still active.
Virtual workers connect through VPNs, which effectively routes all data through the corporate servers anyway. This means all carriers are facing more traffic and need to adapt, including Verizon, and you may want to distance yourself from the sector until the 5G smoke clears.
Is Verizon a Good Dividend Stock?
Verizon has long paid steady dividends, and it’s the strongest player in the U.S. 5G battle. The company’s assets help it outperform competitors like AT&T, T-Mobile, and Comcast, which are weighed down by their exposures in other industries.
It’s saving money by not having massive stakes in paid cable television services, video production, nor streaming services like Hulu. This gives it room to grow, although that’s unlikely to happen until its 5G network becomes more ubiquitous.
For now, Verizon is likely to remain a more stable and reliable dividend stock than its competitors. You’re unlikely to see massive returns or a spike that outperforms the market, but your investment will yield steady dividends. The real question is whether you want to invest in the 5G revolution at all.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.