Verizon Dividend Stock Analysis (VZ)

Description

Sector: Communication Services
Industry: Telecom Services

Verizon (VZ) is a communication, information, and entertainment provider of products and services to consumers, businesses, and government agencies.

The company is the largest U.S Wireless provider (109 million connections) and also offers wireline and broadband services.

SWOT Analysis For Verizon

Strengths

Verizon Wireless has the most geographic coverage and the highest quality network. This has produced customer loyalty (low turnover rate) and profitability.

The billions spent in building their network has created a large barrier to entry for other challengers. Verizon has consistently captured more than its share of the growth from the high value post paid customers.

Weaknesses

The 2014 purchase of Vodafone’s 45% interest has saddled the company with a great deal of debt. The increased leverage comes at a time when wireless business growth is slowing considerably.

Verizon is losing market share in the residential internet access, phone, and television segment of its business to cable & wireless companies. This will make it difficult for the company to justify investments to expand its FiOS network into new areas.

Opportunities

Owning 100% of Verizon Wireless allows the company to bundle services that are attractive to consumers and increase profitability.

Threats

The recent substantial price increases to obtain spectrum from the government increases the cost of infrastructure without compensating increases in revenue. In addition, the government’s reclassification of broadband services under Title II of the 1934 Communications Act could inflict new rules and regulations that discourage long term investment. Any increase in costs hurt profitability in a competitive environment where growth is small or non-existent.

Dividend Analyzer Checklist

(updated January 2017)

Dividend Safety Score (11/33 points)

Dividend Per Share (ttm): $2.27
Dividend Payout Ratio (ttm):  65%
Dividend Per Share (10 Year Growth): 3.2%
Cash From Operations (CFO) Per Share (ttm): $6.89
CFO Dividend Coverage (CFO / DPS):  3.0  (3/6 points)
Free Cash Flow (FCF) Per Share (ttm): $2.68
FCF Dividend Coverage (FCF / DPS):  1.2  (1/6 points)
Net Financial Debt:  $1001050 M
Total Assets:  $239498 M
Net Financial Debt / Total Assets:  42% (3/12 points)
Net Financial Debt to EBITDA (ttm):  250%
Total Liabilities to Assets Ratio (Qtr.): 91%
Piotroski Score (1-9) (TTM): (4/9 points)

Profitability & Growth Score (28/33 points)

Revenue (10 Year Growth) *CAGR > 4.14%:  6.6%  (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%:  7.2% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%:  5.9% (6/6 points)
Operating Earnings Yield (ttm): 13.1%  (7/7 points)
Net Income (ttm): $14023 M
Gross Profit (ttm):  $76125 M
Total Assets: $239498 M
Gross Profitability Ratio = GP / Total Assets:  32%  (7/12 points)
Cash Return On Invested Capital (CROIC)(tttm):  9%
Return on Invested Capital (ROIC): 11%
Return on Invested Capital (ROIC) (5 Year Median): 8%
Return on Invested Capital (ROIC) (10 Year Median): 5%

Valuation Score (23/34 points)

Free Cash Flow Yield (ttm):   5.0%  (6/9 points)
EV to EBIT (ttm):  11.9  (6/9 points)
EV to EBITDA (ttm): 7.4  (7/9 points)
PE10:  22.3   (4/7 points)
Price to Sales Ratio (ttm): 1.6
Price to Book Value (ttm):  9.9
Price to Earnings Ratio (P/E) (ttm):  14.5

TOTAL POINTS – (62/100) (49 is an average score)

*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.

Conclusion

(updated May 2017)

Verizon is ranked #196 (out of 252) overall and #5 (out of 6) in the Communications Services sector by the Dividend Analyzer.

Low growth and the need for massive amounts of capital spending mean that the upside of owning the stock is somewhat limited. Verizon is leveraged making it a riskier asset than before they bought their own shares from Vodafone.  Substantial and stable cash flows make Verizon a average option for investors looking for high income. AT&T is a better option for large diversified dividend portfolios looking for high-yield income.

Type of Investor / Recommendation

Large Diversified Dividend Portfolios /  Average Option
Looking For Exposure to High Yield Income  /  Average Option
Deep Value Investors /  Avoid

Portfolio Position Disclosures:
DVB Dividend Kings & Aristocrats – None
DVB Dividend Growth – None
DVB High Income – None
Arbor Asset Allocation Model Portfolio (AAAMP) – None

Disclaimer:
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.