3 Reasons To Buy Verizon Stock Today

• Verizon stock is down roughly 7% in the last 3 months.
• However, the company registered operating margin expansion at its wireline business apart and has also seen strong free cash flows.
• Improving fundamentals along with a dividend yield of close to 5% could make the Verizon stock a sweet deal for Income investors.

If you're an income investor, you probably know the telecom sector well. For years, investors have turned to telecoms, to provide income and stability to their portfolio. However, the last 3 months has brought a roughly 7% decline in the value of Verizon Communications (NYSE: VZ). Long-term investors should take this opportunity to pick up shares, with a nearly 5% yield.

Verizon Wireline operating margin is Up 250% in the last five quarters

When most investors think about Verizon, they think of the company's huge wireless business. In a similar manner, Sprint(NYSE: S) shareholders are hoping the company's wireless division can continue to turn around. AT&T (NYSE: T) on the other hand, has changed its profile, and now needs to be thought of as a wireless and video delivery giant.

With this in mind, Verizon's wireline business doesn't get a whole lot of press. However, this division is improving, and investors need to pay attention. In Verizon's most recent earnings, the wireline division reported that revenue declined by 2.2%. However, Verizon's results look better, compared to two of its rivals. AT&T's wireline revenue declined by 3%. Sprint's wireline division reported a 16% annual decline.

Digging further into Verizon's wireline results, the company's FiOS business is actually performing very well, with revenue increasing 10% year-over-year. Specifically, Verizon reported mid-to-high single-digit increases in users of both FiOS Internet and Video.

What is important to note is, this growth in FiOS is helping the wireline business' margins. Verizon's wireline operating margin came in at 5.3%. While this doesn't match AT&T's wireline operating margin of 10%, it does represent a significant increase year over year. In April 2014, Verizon's wireline operating margin was just 1.5%.

This means the company has increased its wireline margin by more than 250% in the last five quarters. The wireline business has the opportunity to expand margins further, as FiOS penetration continues. In the end, Verizon's cash flow could improve from better wireline results.

Verizon Cash flow Analysis

If you are looking for a solid dividend, it doesn't hurt to buy the company with the strongest relative free cash flow of its peers. The challenge in comparing companies is, the non-cash adjustments in the cash flow statement.

Core free cash flow looks at net income, adds depreciation and stock based compensation, and then subtracts capital expenditures. Taking core free cash flow even further, we can compare this figure to the company's current quarter revenue.

If we compare core free cash flow per dollar of revenue, this becomes a two horse race very quickly. Sprint is attempting a turnaround, but the company is burning through cash. By comparison, in the last six months, Verizon produced $0.13 of core free cash flow from each dollar of revenue, relative to $0.11 at AT&T. Verizon's superior core free cash flow should help investors believe in the stability of its dividend. The company's core free cash flow payout ratio of 51% over the last six months helps as well.

Verizon Dividend yield is near 5%

A solid dividend isn't necessarily guaranteed if the company can't continue growing. The good news for Verizon investors is, the AOL purchase is already pushing the company further into the video space. While AT&T bought DirecTV to transform its video offerings, Verizon believes going to mobile video with Go90 makes more sense.

Unfortunately for Sprint investors, the company essentially dismissed Verizon's rumored mobile video service as a bad idea. Sprint basically said it would wait and see how things went, and then make a move if necessary. The problem is, Verizon already has more than three times the postpaid customers relative to Sprint. If Go90 is a popular feature, this gap could widen even further.

According to Hunter Qualitative Research, "consumers aged 13 to 24 spend 11.3 hours weekly watching free online video compared to 8.3 hours of scheduled TV." This key demographic seems to be the target for Go90, a free mobile video service that will carry sports content as well as Nickelodeon, Comedy Central, and MTV programming, only on Verizon Wireless.

There are concerns about this service bogging down the company's wireless network, but these doubts ignore the popularity of Wi-Fi. Many consumers use their handsets where Wi-Fi is present as much as possible. This offloads the data from the cellular network, and should alleviate this concern.

The challenge of course is, that Verizon's free video service won't have enough content to change consumers' minds. In addition, this content is a cost to Verizon. If it doesn't move the needle of wireless growth, it could be a waste of time and money.

That being said, Verizon's wireline business is improving, which should help the company's cash flow. As we've already seen, Verizon's core free cash flow is superior to at least two of its peers. Go90 is a risk that Verizon can afford to take. Long-term investors should not risk missing this opportunity to buy Verizon, while its yield is near 5%. Big Red is a strong company, and it's only a matter of time until the market realizes that this temporary haircut is unnecessary and the Verizon stock starts climbing higher.