A Compelling Opportunity for Income Investors?
Income investors shouldn’t overlook telecommunication stocks. They provide essential services to consumers and fat dividends to investors. In fact, it wouldn’t be wrong to call these opportunities “cash cows.”
But why should you pay attention to telecom stocks?
Their large customer base and subscription revenue makes them compelling. It gives these companies consistent cash flows, which ultimately allows them to pay their investors healthy dividends like clockwork.
One telecom stock in particular that’s worth watching these days is Verizon Communications Inc (NYSE:VZ).
Headquartered in New York, New York, Verizon Communications offers communications, technology, information, and entertainment products and services to consumers, businesses, and governments. The company operates under two business segments, Consumer and Business.
VZ stock has been on a tear recently. It’s already up more than 8.5% over the past month. And if you look at the charts, they’re suggesting that investors are bullish and could take VZ stock much higher. As it stands, the stock trades above its 50-day and 200-day moving averages (MAs). Moreover, momentum indicators suggest that buyers are coming in.
Verizon Communications Firing on All Cylinders
Now the big question: why bother paying attention to VZ stock, and not any other telecom stocks?
It’s important to understand that a company’s financial performance is directly correlated with its stock performance. If a company does well financially, its stock price generally follows.
Verizon Communications’ financial performance has improved, and it’s expected to continue doing so in the coming years. This could be great for VZ stock. Other telecom stocks aren’t seeing the same strong tailwinds as Verizon Communications is experiencing.
For some perspective…
On January 24, Verizon Communications reported its financial results for the 2024 fourth quarter and full year. There were encouraging data across the board.
Verizon reported full-year 2024 earnings per share (EPS) of $4.14. In 2023, EPS were $2.75. This represents an increase of over 50% year over year.
The company’s free cash flow amounted to $19.8 billion in 2024, compared to $18.7 billion in 2023.
Another thing worth noting in the fourth quarter of 2024 alone is that Verizon added about one million postpaid mobile and broadband subscribers. This is the best quarterly increase in more than a decade for the company!
Verizon’s churn rate—the rate at which subscribers stop their services—remains extremely low at around one percent.
Regarding what’s ahead, Hans Vestberg, the company’s chairman and chief executive officer, said, “It’s only going to get better this year and beyond, as we have continued to strengthen Verizon with the pending Frontier acquisition, new satellite partnerships, and ongoing AI enablement, which we expect will enhance and broaden our network for everybody we serve. “(Source: “Verizon delivered strong customer growth and profitability in 2024,” Verizon Communications Inc, January 24, 2025.)
VZ Stock’s Outlook Remains Rosy
Wall Street analysts have a rosy outlook on Verizon Communications.
Wall Street analysts are projecting the company’s revenue to be around $137.0 billion in 2025 and close to $140.0 billion in 2026.
Analysts are projecting EPS of $4.68 in 2025 and $4.87 in 2026. (Source: “Analysis,” Yahoo! Finance, last accessed February 21, 2025.)
If Verizon’s earnings continue to improve, VZ stock could continue to move higher.
VZ Stock Offers a Decent Dividend…and It Could Grow
There’s one more reason to be bullish on VZ stock: its dividend.
At the current price, VZ stock has a dividend yield of 6.5%, paying $2.71 per share ($0.6755 per share in quarterly payments). Just so you know, this is relatively higher than the five-year average dividend yield of 5.43%. (Source: “Dividends,” Morningstar, last accessed February 21, 2025.)
Note that the consistency of dividends at Verizon is commendable. This company pays investors through thick and thin. And, over the years, as business has improved, dividend payments have as well. VZ stock paid dividends during the financial crisis and Great Recession. It never stopped paying out during the pandemic. In fact, Verizon Communications increased its dividends in 2020, 2021, and 2022.
Typically, Verizon Communications’ payout ratio is around 50%. Assuming this payout stays consistent over the long term, and that business improves, shareholders could see their dividend income grow.
The Lowdown on VZ Stock
VZ stock is offering investors a compelling opportunity: shareholders don’t just have the ability to generate consistent, solid income here, but they also get decent capital appreciation.
Verizon Communications is positing great financial results and growing its customer base, and management’s positive outlook is nothing but music to my ears.
Just so you also know, VZ stock has broad institutional ownership. As per the most recent data, 3,681 institutions own over 66% of all outstanding shares. The top three institutional holders—The Vanguard Group, BlackRock Inc, and State Street Corp—own over 902 million shares of VZ stock.