5G is set to spur Verizon’s 4.3 % yield

The company’s plan to cut its long-term operating costs by $10 billion should help offset the $18 billion upgrade of its wireless networks to 5G.

At the same time, it’s just completed the integration of its Internet properties into a new division.

The stock trades at just 11.9 times the company’s 2019 earnings forecast.

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VERIZON COMMUNICATIONS INC. (New York symbol VZ; www.verizon.com) has 117.9 million wireless users, 11.5 million phone customers and 15.1 million Internet and TV subscribers.

The company’s revenue rose 3.6%, from $127.1 billion in 2014 to $131.6 billion in 2015. In 2016, Verizon sold some of its local telephone operations. As a result, revenue for that year fell to $126.0 billion. Revenue was unchanged in 2017, but improved to $130.9 billion in 2018.

That 2018 gain was largely due to the June 2017 purchase of Internet search site Yahoo for $4.5 billion. Verizon later merged all of its Internet businesses, including AOL and the Huffington Post, into a new division now called Verizon Media. It now supplies 5% of the company’s total revenue.

The company plans to launch its ultra-high-speed 5G wireless service in over 30 U.S. cities this year. This new system will make it easier for Verizon to offer Internet and TV services to more households—particularly in rural areas and underpopulated markets.

In addition, the company plans to expand its One Fiber high-speed Internet service to more than 60 U.S. cities.

In all, Verizon plans to spend between $17 billion and $18 billion on upgrades to its networks in 2019. To put that in perspective, the company’s cash flow in 2018 totaled $24.3 billion.

Overall earnings rose from $3.35 a share (or a total of $13.3 billion) in 2014 to $3.99 a share (or $16.3 billion) in 2015. Earnings then dipped to $3.87 a share (or $15.8 billion) in 2016 and fell again in 2017 to $3.74 (or $15.3 billion). However, earnings rebounded to $4.71 a share (or $19.3 billion) in 2018 thanks partly to the recent U.S. tax cuts.

Blue Chip Stocks: Cost cutting should defray 5G build-out expenses

Verizon now aims to cut its long-term operating costs with a new plan that offers employees a voluntary separation payment. The company hopes to realize total cash savings of $10.0 billion by the end of 2021.

Those savings will help fund Verizon’s plan to launch ultrafast 5G wireless service in over 30 U.S. cities by the end of this year. It plans to spend between $17 billion and $18 billion on upgrades to its networks in 2019.

The stock trades at 11.9 times Verizon’s 2019 earnings forecast of $4.68 a share. With the November 2018 payment, the company increased its quarterly dividend by 2.1%, to $0.59 a share from $0.5775. The $2.41 dividend yields a high 4.3%.

Recommendation in Dividend Advisor: Verizon Communications is a buy.


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