Why Verizon Should Be In Your Portfolio
Joel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Verizon (NYSE: VZ) reported yet another quarter of spectacular revenue, proving its consistency in terms of growth and performance. Its Q2 revenue is commendable at $28.5 billion and earnings per share of $0.64, up 3.7% and 12.3% respectively from the comparable quarter last year.
To talk about the future of this New Jersey based company is to talk about strong long term goals:
The company has added 134,000 fiber optic internet and 120,000 fiber optic video subscribers. Verizon has not only invested in its FIOS network, but has also cracked a precious spectrum deal for $3.9 billion after negotiations with the FCC. Spectrum, a precious and scarce resource is the key to success in the coming years for any telecommunications provider.
Verizon has been considered as the best telecom service provider given that its churn rate has dropped from 1.2% in the year-ago quarter to 1.1% .
With the advent of the tablets and with the surge in sales of smartphones, the crowd has gone berserk over doing virtually everything on the go. From downloading and surfing the internet to streaming multimedia content.
Consumers with data hungry tech devices are creating an ever increasing pressure on service providers to offer higher quality services at faster speeds.
Verizon finds itself in a favorable position as it now has a nation-wide chunk of prime spectrum which it bought from cable companies recently.
But that’s not all…
Verizon is also competing with Canada based ‘on demand’ internet streaming provider Netflix (NFLX) and Apple (AAPL) (iTunes services) by partnering with Coinstar. This deal brings additional revenues considering how big the online movie business is.
With the acquisition of Hughes Telematics, Verizon has entered into manufacturing wireless devices for vehicles. The growth prospects are huge and this deal will open up a world of opportunities in vehicle GPS, safety and entertainment and help it compete in the fields of satellite system operations, telecommunications equipment manufacturing, satellite & broadcast network, equipment manufacturing and telecommunications services.
No, it doesn’t stop here. For all those investors going gaga over dividends, the company has been gradually increasing its D/P ratio: from $0.46 per quarter to $0.50 per quarter. Verizon has been rated as one of the highest dividend paying companies.
What about the competitors?
While Verizon managed to get its paws on prime cable spectrum, AT&T (NYSE: T) was busy floundering with the T-Mobile deal which ultimately got disapproved by the FCC. Hence, Verizon is able to effectively compete today, in providing 4G LTE services.
Now I’d like to highlight Sprint Nextel (NYSE: S), which has experienced a speculative 121% rise in its share since May this year because of the billions of dollars of debt ($10 billion in net debt and almost $38 billion in total debt) that it has to service leading investors to believe the company is heading for a probable takeover. Furthermore, it has actively invested and partnered with Clearwire (NASDAQ: CLWR) which has a lot of spectrum to spare. But the problem is that Clearwire's 2.5 GHz spectrum is not of the highest quality and is a lot more prone to service disruptions.
The Foolish Takeaway
It is true that Verizon’s stock has been dipping for the past 2 months. But there’s no concrete reason to see why that should happen. Over the last 10 years, Verizon has only had 4 unsuccessful quarters. The company has shown consistency in earnings and a profit margin of over 5% in most quarters. Having said that, Verizon’s future looks great as it continues with its 4G LTE ambitions.
Verizon is definitely a good buy. Firstly because the company has a lot of growth potential, and secondly because its stock is trading at low valuations, that too topped by an annual dividend yield of 4.7%.
Sounds interesting? Well, what do you think about Verizon?
rahelg has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Netflix. Motley Fool newsletter services recommend Apple and Netflix. 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.