Verizon's 6% Yield Is Worth Holding for Years
Key Points
Verizon's yield is above 6%, and it has raised its dividend for 20 consecutive years.
Free cash flow is growing, and dividends consume only about half of it.
Verizon is adding phone customers without leaning on costly giveaways, even as SpaceX looms.
Verizon Communications (NYSE: VZ) shares fell nearly 9% on Oct. 9, its worst day since 2002, after Space Exploration Technologies (SpaceX) acquired nationwide spectrum, setting up the prospect of a Starlink mobile service. Yet Verizon's latest quarterly report showed a healthy business behind a dividend yielding more than 6%. Here's why the stock looks worth holding for years.
Verizon pays $0.7075 per share each quarter, or about $2.83 per year, yielding about 6.5% at roughly $43.50 per share on Oct. 26. The company has raised its payout for 20 consecutive years. Free cash flow -- the cash left after running and upgrading the network -- rose 12% to $7.8 billion in the third quarter, and management raised its full-year growth forecast to nearly 12%.
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Dividend payments accounted for about 58% of free cash flow over the past year, leaving plenty of room to sustain the dividend even if Verizon experienced a soft year for results. CFO Tony Skiadas said Verizon remains "committed to growing the dividend."
Image source: Getty Images.
Importantly, Verizon is winning phone customers on value, not promotional giveaways. CEO Dan Schulman pointed to its Simplicity plan, loyalty program, and phone-plus-home-internet bundles, which help build a loyal customer base that sticks with Verizon rather than switching to a competing carrier. "We are not buying customers. We are winning them on revenue-positive terms and keeping them longer," he said.
Verizon added a net 406,000 customers on monthly phone plans -- typically its most valuable customers -- up 820% from a year earlier, and fewer customers are leaving each month.
If SpaceX launches its own service, it will get its share of the business, but it won't control 100% of the market. The wireless carrier market is already very competitive. Leaders like AT&T and Verizon have a large retail presence, providing in-person customer service that will be difficult to dislodge.
With cash flow covering the dividend and customers staying longer, Verizon still looks like a solid long-term income investment.
John Ballard has positions in Space Exploration Technologies. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.