Why this Company is a Hot Stock
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I believe Verizon (NYSE: VZ) has used its commitment to expanding its product line and improving its current services to position itself for continued future growth. The company’s first quarter earnings report also backs this belief and I expect future earnings reports to do so as well. Verizon has seen vast improvement in its financials since the first quarter of 2011, which tells me it is headed in the right direction even in the face of a struggling global economy.
Verizon's free cash flow is increasing, which means less money is locked up in debt or capital investments. This should allow Verizon to continue its record of paying out a healthy dividend. Verizon paid out $5.6 billion in dividends in 2011, and will continue this tradition as it recently declared an unchanged quarterly dividend of $.50 per share. This results for a very healthy annual yield rate of over 4.6 percent.
The first quarter earnings report and Verizon’s good dividend rate are extremely attractive for potential investors. Before blindly investing based on past numbers, one must determine if the company has positioned itself for continued growth and success. I believe the company has, in fact, positioned itself for future success by both improving its current services and expanding into new product lines.
Verizon Wireless, the joint venture in which Verizon Communications has a 55 percent stake and Vodafone Group (VOD) owns the rest, is working to improve its high-speed, wireless communications across the country. The company has been expanding coverage of its 4G Long Term Evolution (LTE) network, most recently with increased coverage in West Virginia. Verizon already offers the nation’s largest 4G LTE service, covering more than two-thirds of the United States. This 4G service offered by Verizon, which offers more than six times the coverage of the closest competitor, allows for users to browse the internet, stream music and video, and use their choice of any other application at a speed ten times faster than before. Verizon also offers the largest selection of 4G LTE compatible devices, including a number of tablets, mobile hotspots, and smart phones.
While Verizon has previously offered 3G services in most of the United States, the expansion of the 4G network across the country should drastically increase Verizon’s number of users with increases in revenue and profits to follow. Verizon’s improved mobile services are superior to the likes of AT&T (NYSE: T), Sprint Nextel (S) and T-Mobile, and are just one reason I expect Verizon’s stock price to experience future growth. AT&T currently uses the slower HSPA+ 4G technology, compared to Verizon's 4G LTE service. AT&T has been hard at work lately in trying to catch up to Verizon. The telecom giant recently launched 4G LTE service in Nashville, where Verizon has long been dominant.
Verizon is also expanding its product and service line with the acquisition of Hughes Telematics earlier this month. Verizon made this acquisition to become more competitive in the machine-to-machine car technologies and services market. There is opportunity in the in-vehicle services market. The company introduced the 4G Venture Forum for Connected Cars, which is a partnership between a group of car manufacturers and Verizon to improve automotive applications using 4G networks.
Verizon intends to provide the best in-car music streaming option available, while also providing different automotive applications that may help drivers find the cheapest gas station or quickest route given traffic trends. Verizon’s new focus on using its 4G LTE network to improve drivers’ experience will certainly threaten General Motors (NYSE: GM), which is not part of the new 4G Venture Forum, because whatever in-car services Verizon offers will likely be in competition with General Motors’ OnStar service. General Motor's could end up missing out on a big opportunity here if Verizon ends up being able to leverage the Telematics systems to bring down the cost.
Sirius XM Radio (NASDAQ: SIRI), which makes it money selling its premium satellite radio service, will also be threatened by Verizon’s new expansion. Sirius will very likely lose subscribers as Verizon continues its work to provide a music-streaming service via automotive applications. Verizon’s future music-streaming service, which will likely be similar to Pandora Media’s (P), will be cheaper than premium radio service, and will aim to attract Sirius’ current user base.
I see Verizon’s commitment to providing the best mobile network, and the improved data plans as measures taken by the company to ensure its firm place in the industry. Verizon’s expansion into radio and automotive applications is a huge opportunity that could be very profitable for the company as well. I believe Verizon is a smart move for investors. The company shows promise in continuing to offer the best mobile service network in the nation, and is also exploring the proper amount of expansion into new services. Management has placed Verizon in the favor of the public eye, which is just one more reason why Verizon is an attractive investment and I recommend buying its stock.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.