Verizon Communications Inc. (VZ) is one of the largest wireless carriers in the US. It recently traded with a market cap of $180 billion and it generates $134 billion in annual revenue. The stock’s high 6.3% dividend yield immediately stands out. But there’s more to Verizon stock than just a high yield, highlights Ben Reynolds, editor of Sure Dividend.
First, the company continues to invest for long-term growth. On Sept. 5, 2024, Verizon announced it would acquire Frontier Communications Inc. (FYBR) in an all-cash transaction based on a $20 billion enterprise value.
Frontier is the largest pure-play fiber Internet provider in the US, so the acquisition will significantly strengthen Verizon’s fiber network. The acquisition is expected to close in Q1 or Q2 of 2026 and be accretive to earnings per share in fiscal 2027.
On Sept. 4, 2024, Verizon announced that it was increasing its quarterly dividend 1.9% to $0.6775, extending the company’s dividend growth streak to 18 consecutive years. Verizon is the rare security that offers both a high 6%-plus dividend yield and a consistent track record of raising the dividend every year.
On Oct. 22, 2024, Verizon reported third-quarter results for the period ending Sept. 30, 2024. For the quarter, revenue declined 0.1% to $33.3 billion. Adjusted EPS of $1.19 compared unfavorably to $1.22 in the prior year. Free cash flow totaled $14.5 billion for the first half of the year, compared to $14.6 billion last year. Verizon reaffirmed its prior guidance for 2024 as well.
The company continues to expect adjusted EPS in a range of $4.50 to $4.70. At the midpoint of guidance of $4.60, 2024 will be the company’s weakest year since fiscal 2017.
We do expect the company to return to EPS growth in 2025 and beyond. Moving forward, we are projecting earnings growth of 2.5% over the next five years. This growth estimate is below the company’s historical average due in part to the company’s lackluster performance over the last few years. The company’s all-time EPS high (so far) occurred in 2021.
We expect Verizon to generate adjusted EPS of $4.60 in 2024. Based on this, the stock was recently trading at a price-to-earnings ratio of less than 10. Our fair value estimate P/E ratio is 11 – so we believe Verizon stock to be undervalued at current prices.
The high 6%-plus dividend yield is well covered by earnings as the payout ratio is under 60% of expected fiscal 2024 EPS. Investors can hold Verizon, collect its sizeable dividend, as well as likely continued increases to the dividend in the years ahead, while waiting for the valuation multiple to increase.
