Verizon's A Good Play For Income And Growth

Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In today’s dynamic stock market, it’s very rare to come across a stock that sufficiently meets the needs of both income and growth oriented investors. Not only are these two inclinations of investing at opposite sides of the spectrum, but it’s also next to impossible to optimize on growth while simultaneously dishing out hefty dividends. Interestingly, I have been able to narrow in on a stock that delivers both income and growth in one distinctive package, a stock that for the past several years has grown at a frenzied pace, while at the same time increasing its yield year after year; I am talking about Verizon (NYSE: VZ).

To put this argument into perspective, let’s take a look at Verizon’s dividend over the years. With its yield currently at 4.7 percent, critics may argue that AT&T (NYSE: T), which has a higher yield, offers a better deal. While this argument is remotely true, I can’t help but ask: will AT&T be able to sustain its yield in the long haul relative to Verizon?  I don’t think so. In addition to Verizon’s wireless footprint being bigger than AT&T’s, the latter is also ranked last in many consumer reports. Tailwinds in the wireless sector are likely to generate cash and improve Verizon’s stock both in the near term and the long haul. As such, I am inclined to believe that Verizon will be able to grow its dividend at a steadier and more progressive rate when compared with AT&T.

The chart below shows Verizon’s dividend for the past several years:

<img src="/media/images/user_13010/vz_1_large.jpg" />

Perhaps the most notable feature in the chart is the fact that dividend growth continued its upward trajectory, even after the financial hiccup in 2008.  Verizon’s ability to contain internal conditions in the face of a troubled economy signals stability. This element greatly enhances predictability of the stock.

Incline toward data and smartphone market guarantees long term growth

Moving over to growth, I am particularly drawn in by Verizon’s profound inclination toward data and smartphones. If I may revisit the issue on wireless, it comes of note that Verizon Wireless is by far one of the most lucrative and promising segments in Verizon’s fold. Moreover, Verizon currently has the biggest 4G roll out, and company CEO Lowell McAdams hinted during the Las Vegas Consumer Electronic Show that 4G roll out will have reached 100 percent of American consumers by the fall of 2013. In the same light, Verizon will begin broadcasting video content to large specialized audiences, for example allowing professors to broadcast lectures to large audiences across the country. In my opinion, this will not only translate to more customer additions, but it will also be instrumental in fueling future growth.

With regard to the smartphone market, Verizon couldn’t be better placed. Recent history shows that most bigwig handset makers scramble to ink a deal with it before any other carrier. This leaves smaller competitors like Sprint (NYSE: S) with only the crumbs. Although Sprint has done remarkably well in the recent past, as demonstrated with its signing off to the Windows phone 8, it still has a long way to go to rival Verizon. While a Windows phone 8 will help Sprint to get going in the enterprise market, the telecom player still needs to get a solid play in the consumer market.

As of now the spotlight is on Verizon Wireless. Will it continue delivering growth and value for Verizon? The venture, which is valued at over $200 billion, has made front page news on recurrent occasions over rumors that Verizon was in talks to buy out Vodafone’s 45 percent stake. Although CEO McAdams formally dismissed the rumors, he has on several occasions made it explicitly clear that Verizon was more than interested in buying Vodafone’s stake in Verizon Wireless. In my opinion, this whole issue will be a trending topic in this year’s news. If Verizon can manage to ink a deal and get the remaining stake of Verizon Wireless, it will not only increase the outlook on growth but it will also widen the competitive gap between Verizon and its competitors.

In conclusion, I believe that Verizon is a good play. Analyst estimates for the impending earnings report are bullish and recent performance suggests that its stock will continue edging upward. In addition, the amount management is willing to give investors to hold on to the stock is alluring at the least. Verizon is a buy.

muhammadbazil has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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