Verizon: High-Yield Telecommunications Stock
The telecom industry is not an industry with strong growth rates, and it can seem a bit dull from the outside, compared to flashier industries such as biotech or social media stocks. Even stocks from somewhat tedious industries can produce attractive total returns and compelling dividend streams as long as shares are bought at the right time.
We believe that it makes sense for income-oriented and risk-averse investors to regularly check the dividend yields and valuations of telecom stocks, as sometimes buying opportunities appear in the stocks of these non-cyclical companies.
Right here, Verizon (ticker: VZ), one of the largest telecom companies in the US, promises safe and reliable dividends and compelling total returns on top of that, making it one of our favorite telecom stocks. In this article, we will take a closer look at the company.
Company Overview
Verizon is a telecom company that was created in 2000, through a merger between Bell Atlantic and GTE. Verizon offers services such as wireless voice and data, network products and networking solutions, internet & TV, and many more to its customers, which include consumers as well as businesses and government agencies.
Verizon has about 120 million retail connections, which makes Verizon a top 2 telecom company in the United States. The company is valued at $230 billion right now and is headquartered in New York, NY.
Verizon Offers Slow But Reliable Growth
Verizon is, like many of its peers, not a high-growth play. During the most recent quarter, its revenues rose by 1%, while its earnings-per-share rose by 3% during the same time frame. This is not spectacular at all, but even a low single-digit earnings-per-share growth rate can result in ample total returns if supplicated by a high dividend yield and multiple expansion potential.
Verizon’s growth is also not vulnerable versus economic downturns, as neither consumers nor businesses will stop using wireless services or broadband connections during a recession, which makes Verizon a relatively resilient company during harsh times.
Verizon also should benefit from some growth tailwinds thanks to the emergence of 5G. As one of the largest carriers it has sufficient capital to quickly build out a 5G network, whereas smaller peers such as Spring or T-Mobile will have a much harder time in offering 5G network coverage to their customers. This could lead to increasing market shares for Verizon and its peer AT&T, which will also be able to roll out a 5G network in time. We thus believe that Verizon’s earnings-per-share growth will accelerate slightly, to 4% in the long run.
Verizon Offers A High And Safe Dividend Yield
Verizon’s dividend yields 4.3% right now, which is more than twice the broad market’s dividend yield. This makes Verizon attractive for income-oriented investors, which will also note approvingly that Verizon’s dividend payout ratio is relatively low, at just 51%, based on estimates for this year’s net profits. Coupled with the fact that Verizon is not overly vulnerable versus economic downturns, this makes Verizon a solid pick for defensive dividend investors that want reliable income.
Verizon trades at 11.7 times this year’s expected net profits right now, which is a rather low valuation in absolute terms, and also relative to what we deem a fair valuation. We see upside potential towards a price to earnings multiple of 14, which results in expected multiple expansion tailwinds of 3.7% throughout the next five years.
All in all, Verizon offers compelling total returns, as we expect returns of 12% annually from the current level, consisting of earnings-per-share growth of 4%, Verizon’s dividend yield of 4.3%, and multiple expansion tailwinds of 3.7%.
Investor Takeaway
Even though the telecom industry is not the best place to look at if you are growth-oriented, there are compelling buying opportunities regularly. Right now Verizon is one of our favorite telecom stocks, as the company offers a safe dividend yielding 4.3%, while multiple expansion and earnings growth could result in attractive, double-digit total returns over the coming years.
Disclaimer: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure ...
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