Verizon's (VZ) Dividend Hike Displays Solid Balance Sheet Position
A steady dividend payout is part of Verizon's (VZ) long-term strategy to provide attractive risk-adjusted returns to its stockholders.
Verizon Communications Inc. VZ recently hiked its quarterly dividend payout by about 2% to 64 cents per share or $2.56 on an annualized basis. This portrays a solid balance sheet position of the company despite a surge in fresh coronavirus cases fueled by the Delta variant and continued infrastructure investments for a faster 5G rollout across the country.
Based on the closing price of $55.43 as of Sep 3, the proposed dividend affirms a yield of 4.6%. A steady dividend payout is part of the long-term strategy of Verizon to provide attractive risk-adjusted returns to its stockholders. Additionally, healthy dividend increases at periodic intervals have been one of its key strengths.
This is the 15th consecutive year that the company has increased its quarterly dividend. The current hike reflects its inherent financial strength and strong cash flow generated from continued focus on high-margin businesses and healthy execution of operating plans. Verizon has a dividend payout rate of 48.6%. Barring the last reported quarter, the rate has remained more or less steady over the past few quarters, indicating that the company is sharing more of its earnings with stockholders.
In order to boost its liquidity, Verizon has been looking to slash costs through employee reduction, active management of its near-term maturities, and optimization of overall funding footprint, and lowering the cost of capital. The company has achieved its target of $10 billion of cumulative cash savings during the first quarter well ahead of its year-end 2021 deadline. Verizon currently has a debt-to-capital ratio of 0.67 compared with 0.54 of the industry. The times interest earned ratio has improved steadily over the past few quarters to 7.6 at present relative to 2.7 of the industry. This suggests that the company is more likely to meet its debt obligations.
Verizon is likely to benefit from a disciplined network strategy, backed by a customer-centric business model and diligent execution of operational plans. In addition, the company remains focused on making necessary capital expenditures in order to support increased demand for network traffic. The company continued the aggressive rollout of 5G Ultra Wideband service to expand its coverage to 78 cities across the country. Verizon also deployed Home Internet service in select cities, where users experience a maximum download speed of up to 1 Gbps, to bring its coverage to 52 markets. It further expanded its 5G Business Internet service to 42 cities that offers an alternative to cable broadband.
The company is offering the best of LTE and 5G Ultrawideband facilities with the launch of On Site 5G — a transformative on-premises, private 5G network — for business enterprises. This customized solution enables firms that were hitherto crippled with coverage gaps, lost connectivity, fractured security, data congestion, and inconsistent service quality to have a dedicated capacity with adequate bandwidth to minimize costly downtime and missed opportunities. Verizon also launched Hyper Precise Location service — a Software-as-a-Service offering that provides real-time global navigation satellite system data with precision accuracy — in more than 100 major U.S. markets. Verizon’s 5G mobility service offers an unparalleled experience that impacts industries as diverse as public safety, health care, retail, and sports. The company’s 5G network hinges on three fundamental drivers to deliver the full potential of next-generation wireless technology. These include massive spectrum holdings, particularly in the millimeter-wave bands for faster data transfer, end-to-end deep fiber resources, and the ability to deploy a large number of small cells.
All these positives and sound financial management probably led to the quarterly dividend hike.
Verizon presently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader industry are Clearfield, Inc. CLFD, sporting a Zacks Rank #1 (Strong Buy), and InterDigital, Inc. IDCC and Qualcomm Incorporated QCOM, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Clearfield delivered a trailing four-quarter earnings surprise of 49%, on average.
InterDigital has a long-term earnings growth expectation of 15%. It delivered an earnings surprise of 536%, on average, in the trailing four quarters.
Qualcomm has a long-term earnings growth expectation of 21%. It delivered an earnings surprise of 13.5%, on average, in the trailing four quarters.
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