Is Verizon the Best Value in Telecoms?
Verizon (NYSE: VZ) might be the best value in telecom stocks these days. It is also a really good income and dividend stock.
What I like best is all the value one gets for the share price of $50.26 that Verizon was fetching on October 12, 2016. The financial numbers show us that Verizon has a lot of cash and value.
Highlights of that cash and value include:
- $130.12 billion in revenues on June 30, 2016.
- A net income of $14.44 billion on the same day.
- A quarter profit margin of 2.3%.
- $1.347 billion in free cash flow at the end of second quarter 2016.
- Assets of $231.87 billion at the end of first quarter 2016.
- Cash and short-term investments of $2.857 billion.
- $32.85 billion in cash from operations.
Verizon is a company with a lot of cash and value. More importantly it has a far sighted management capable of far sighted moves to increase that value.
Buying Yahoo Proves Verizon is a Smart Company
A good example of this foresight is the purchase of Yahoo for $4.8 billion in July. Yahoo was a pale shadow of its former self but it still has a lot of potential value and income.
The search engine still managed to capture 5.8% of the digital advertising revenues in 2015, according to The Financial Times. Even though that number is supposed to fall by 13.9% this year, Yahoo is still expected to generate $2.83 billion in advertising revenues in 2016, according to eMarketer.
Yahoo’s display advertising business alone is expected to generate $1.141 billion in revenue in 2016. More importantly its mobile advertising revenue is expected to grow by 24.5% this year rising to $1.31 billion. That’s even though Yahoo’s share of the mobile advertising market is expected to shrink.
Why Verizon has a Lot of Float
What is more important is that Verizon has a lot of float and that float is growing. Verizon Wireless had 142.75 million customers in the United States in second quarter, 2016, making it America’s largest wireless provider.
More importantly, Verizon’s wireless business has been growing steadily for some time, the company had 141.47 million subscribers in first quarter 2016, and 135.44 million in second quarter 2015, data from Statista indicates. Verizon added 7.31 million new wireless customers over the past year.
Since every one of those customers has to pay a monthly subscription to keep his or her wireless service that gives Verizon a vast amount of float. The float from all those subscriptions gives Verizon the cash it needs to make purchases like Yahoo. Yahoo in turn will generate even more float in the form of advertising revenue.
If you like float you will have to love Verizon because in addition to the 141.47 million wireless customers, Verizon had 9.23 million broadband customers at the end of 2016. Like the wireless customers the broadband subscribers have to pay a monthly bill to keep their subscription.
Even though the broadband business is still shrinking it is still capable of generating a lot of float and will do so for years to come. Even Verizon’s 4.9 million customers that sill use copper landlines generate some float. Ars Technica reported that Verizon’s wireline system generated $9.8 billion in revenue during second quarter 2014.
Verizon is a Great Income and Dividend Investment
All of this makes Verizon a great income and dividend investment. Its investors received a dividend yield of 4.52% on October 12, 2016.
That dividend yield has been much higher in recent years, it was 5.05% on September 29, 2015. More importantly, Verizon’s dividend yield has not dropped below 3.95% at any time over the past four years, information provided by ycharts indicates.
Income investors will like the fact that Verizon has been paying a cash dividend for every quarter since July 2004, according to Nasdaq. It did not even slow down during the great meltdown of 2007-2008. If you’re looking for reliable dividend income, Verizon is certainly worth a look.
The dividend has also been growing, the next payout scheduled for November 1, 2016, will be 57.75¢, a 1.1¢ increase over August 1, payment. More importantly that dividend has kept pace with inflation, Nasdaq’s data indicates that it has been increasing by around 1¢ a year for the past 12 years.
This makes VZ a good dividend stock but there’s some other great income available there as well. Verizon investors were rewarded with a 91.55% return on equity on June 30, 2016.
If you’re looking to add one telecom to your portfolio, Verizon would be a great choice. It has become a tremendous income stock with a lot of growth potential.