Massive Telecom Stock with 7% Yield

Is Verizon Stock a Buy? Telecommunications giant Verizon (NYSE:VZ) has sold off by nearly 30 percent year-to-date, leaving it with an appetizing dividend yield and an attractive valuation.
In Q3, Verizon saw year-over-year revenue growth of 4 percent, with total revenues rising to $34.2 billion. Wireless revenue growth was much stronger at 10 percent.
Earnings, however, saw a significant decrease, falling 23.3 percent from the same period in 2021.
Despite this loss, Verizon did outperform the analyst consensus estimate of $1.29 per share, reporting $1.32.

Across the board, Verizon saw modest gains in account numbers. Net additions in postpaid phones totaled 8,000, while the company added 377,000 broadband customers. While not massive, these numbers show that Verizon is still growing its customer base.
Going forward, management is tightly focused on operational cost-cutting. Bringing costs under control could support higher earnings per share, eventually driving the price of the stock higher. These cost-cutting measures have been paired with price increases, giving Verizon a decent response to inflationary pressures.
Continued investments in 5G infrastructure could also help Verizon in the long term, as these investments will likely begin producing returns in the near future.
So is Verizon stock a buy?

Attractive Valuation

Over the next 12 months, analysts expect Verizon to rise to $43, 15.4 percent above current levels.
The stock maintains a consensus hold rating, with 20 out of 29 analysts advising holding the stock. Even the most bearish target price, though, would only see Verizon sink to $37.
Verizon also appears to be a reasonably good value at the moment. At just 7.2 times its forward earnings, Verizon is trading at a substantially lower multiple than the broader market. The company also produces a favorable $9.19 in cash flow per share, more than double the industry average of $4.56.
It should be noted, however, that not all of Verizon’s value metrics are positive. Its price-to-earnings-growth ratio of 1.73, for instance, suggests that it is somewhat overvalued. The same is true of its price-to-book ratio of 1.76.

Very Enticing Dividend Yield

One of the main arguments in Verizon’s favor is its potential as an income-producing stock. The stock currently pays $2.61 per share, giving it a dividend yield of 7.01 percent.
This places Verizon far above the average dividend yield of the S&P 500, which is only 1.82 percent. As such, the stock may be particularly attractive to income investors.
While high yields can be a sign of financial instability, this does not seem to be the case with Verizon. The company’s dividend payout ratio is 56.6 percent, which is considered relatively safe.
The company has also raised its dividend for 17 consecutive years, encompassing both the 2008 financial crash and the sudden contraction associated with COVID-19. As such, Verizon’s dividend is likely fairly safe for the foreseeable future.

Wall Street Punishing Slow Growth 

Arguably the biggest risk for Verizon is slower growth going forward. Analysts expect the company the grow at an annualized rate of just 2.2 percent over the next five years. Even with its extraordinary yield, this could put the stock lagging behind the broader market, especially in the event of a renewed bull run.
Debt could also weigh on Verizon. The company’s current debt-to-equity ratio is 1.5, which is slightly concerning for a business as established and mature as Verizon.
As of now, the company is successfully navigating the waters of higher interest rates and continuing to generate respectable cash flow. Given the likelihood of an economic slowdown next year, though, Verizon’s debt load cannot be ignored.
A final risk for Verizon is that of increased competition. T-Mobile, in particular, has been improving its business in recent years. As such, Verizon may struggle to seize and maintain market share in a fiercely competitive telecom environment.

Is Verizon Stock a Buy?

Verizon does have several positives working in its favor. With a decent valuation and a stable dividend that vastly outpaces the S&P 500’s yield, it’s hard to write the stock off altogether. Management’s efforts to cut costs could also improve earnings, potentially giving Verizon a chance at higher share prices.
Verizon also hopes to benefit from the rollout of 5G communications networks. With its massive ability to invest in 5G infrastructure, Verizon has the potential to gain market share as consumers seek out the latest, fastest wireless communications. If this effort is successful, Verizon could see faster growth rates than analysts predict, potentially bolstering share prices.
Slow growth and debt, however, could counteract these positives. Verizon will likely produce modest returns, but its shares could underperform the broader market in the years to come. Competition for wireless users is also heating up, potentially putting pressure on the legacy telecommunications giant.
Ultimately, Verizon is likely a decent buy for conservative investors focused more on income than growth. Challenges notwithstanding, the stock’s 7 percent yield is extremely difficult to beat safely in today’s market.
As such, Verizon has real potential in an income-producing portfolio. With its reasonable payout ratio, there’s no particular reason to believe that Verizon’s dividend will stop growing or drop anytime in the near future.
In terms of growth, however, the company doesn’t look as attractive. With slow growth rates predicted going forward, investors shouldn’t expect massive returns from the stock.
The bottom line is if you’re looking for income, Verizon is an attractive play and has a relatively stable share price relative to the overall market but it’s not a stock to jump on if you’re seeking growth or fast money.

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