A Top Dividend Stock With Strong Growth Potential
Since the stock market rebounded from the COVID-19 pandemic-induced sell-off in March 2020, growth stocks have been all the rage. Just look at the tech stocks that shot through the roof—there were many of them. Dividend stocks, on the other hand, have also recovered from the market crash, but for most of them, the upward journey has been much slower.
In fact, there are solid dividend stocks that currently trade below their pre-pandemic levels. And I’m not talking about little-known companies. I’m talking about large-cap, blue-chip companies like Verizon Communications Inc. (NYSE:VZ). Verizon is a household name in the U.S., and the company commands a market capitalization of well over $200.0 billion.
VZ stock was trading around $60.00 per share before last year’s market tumble. As of this writing, it’s trading at $55.78.
Of course, lackluster share-price performance doesn’t always mean a stock is a good opportunity. But in the case of Verizon stock—especially in today’s bloated market environment—I believe it is.
Verizon Communications Inc. came into existence on June 30, 2000 through the merger of Bell Atlantic Corp. and GTE Corp. Today, it’s one of the world’s leading providers of technology, communications, information, and entertainment products and services.
Headquartered in New York City, Verizon provides voice, data, and video services and solutions on its networks and platforms. Notably, the company’s 4G LTE network covers more than 2.6 million square miles and more than 99% of the U.S. population. Verizon was the first company in the world to launch a commercial 5G mobile network with a commercially available 5G-enabled smartphone. (Source: “Network Awards,” Verizon Communications Inc., last accessed August 5, 2021.)
Over the years, Verizon has established itself as a solid dividend stock. The company has paid higher dividends every year since 2006. (Source: “Dividend History,” Verizon Communications Inc., last accessed July 30, 2021.)
In other words, even the Great Recession of 2007 to 2009 and the COVID-19 pandemic couldn’t stop Verizon’s dividend-hike streak.
VZ stock’s latest dividend increase was announced in September 2020, when the telecom giant’s board of directors declared a quarterly cash dividend of $0.6275 per share for the November payment. The amount represented a two-percent increase over the company’s prior quarterly dividend of $0.6150 per share.
At its current share price, Verizon stock yields 4.5%.
Considering that Verizon is already established—and pays reliable dividends—VZ stock is more geared toward income investors than growth investors. But you might be surprised at the growth numbers that the company has been churning out.
Verizon reported second-quarter 2021 earnings on July 21. The report showed that, in the quarter, the company generated $33.8 billion in consolidated operating revenue, representing a 10.9% increase year-over-year. If you think this comparison doesn’t mean much, since the year-ago period was extraordinarily bad because of the pandemic, here’s a fact: Verizon’s revenue also represented a 5.3% increase from the second quarter of 2019. (Source: “Verizon Reports Increased 5G Adoption and Record 2Q Performance,” Verizon Communications Inc., July 21, 2021.)
In other words, the company’s business has grown compared to its pre-pandemic level.
At the bottom line, Verizon reported earnings of $1.40 per share for the second quarter of 2021, up from $1.13 per share in the second quarter of 2020. Excluding special items, the company’s adjusted earnings came in at $1.37 per share, which represented an improvement from the $1.18 per share generated in the year-ago period.
The wireless segment has been one of the company’s major growth drivers. During the second quarter, Verizon Communications Inc.’s wireless service revenue totaled $16.9 billion, up by 5.9% year-over-year and up by four percent from its second-quarter 2019 level. Notably, the company had 528,000 retail postpaid net additions, including 275,000 phone net additions. That brought Verizon wireless service’s total retail connections to 121.3 million.
Now, we know that 5G has been a buzzword for growth investors for quite some time. And while Verizon may seem like a “boring” dividend stock, it’s actually well positioned for the 5G boom. The company said that, at the end of June 2021, about 20% of the wireless phone customers of its Consumer segment had 5G-capable devices.
The increasing 5G adoption is a huge monetizing opportunity as more customers are likely going to opt for higher-priced plans.
“[S]tep-up rates were historically high, and nearly 60% of new accounts opted for a premium unlimited plan, a record high,” said Verizon’s chairman and chief executive officer, Hans Vestberg, in the company’s latest earnings conference call. (Source: “Verizon Communications Inc. (VZ) CEO Hans Vestberg on Q2 2021 Results – Earnings Call Transcript,” Seeking Alpha, July 21, 2021.)
“At quarter-end, approximately 69% of our account base was on unlimited plans, with nearly 27% of our account base on premium unlimited plans,”
Considering the number of customers who are yet to hop on the 5G bandwagon, Verizon’s future opportunities could be immense.
As for the company’s outlook, management has updated their guidance. Previously, they expected the company’s total wireless services revenue to grow by at least three percent in full-year 2021. Now, their projection is between 3.5% and four percent.
Moreover, management is raising their full-year adjusted earnings-per-share guidance from a range of $5.00–$5.15 to a range of $5.25–$5.35.
Don’t forget, Verizon stock’s dividends have been on the rise, too. And the company shouldn’t have any problem continuing that track record. In the first six months of 2021, Verizon generated $11.7 billion of free cash flow while paying $5.2 billion in total dividends. Factoring in the growth of the company’s business, there’s plenty of room for future dividend hikes. (Source: “2Q 2021 Earnings,” Verizon Communications Inc., July 21, 2021.)
Bottom Line on Verizon Communications Inc.
Usually, investors have to choose between income stocks and growth stocks.
In the case of Verizon Communications Inc., the company has already established itself as a blue-chip income stock. But because of its potential in the 5G era, VZ stock deserves the attention of growth investors, too.