This firm continues to roll out its ultrafast 5G wireless networks. The extra speed will help the company attract new users and drive revenue as more devices connect to the Internet (called the “Internet of Things”). The higher earnings will also give it more room to reward investors with dividend increases.
Meanwhile the stock trades at just 9.5 times the company’s 2022 earnings forecast.
VERIZON COMMUNICATIONS INC. (New York symbol VZ; www.verizon.com) is the second-largest provider of wireless communication (cellphone) services in the U.S. after AT&T, with 142.8 million subscribers (consumers and businesses) as of March 31, 2022.
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It’s also a leading seller of traditional landline telephone access, along with Internet and TV services. In all, it has 20.0 million wireline customers.
Thanks to rising demand for wireless and high-speed Internet services, Verizon’s revenue increased 4.6%, from $126.03 billion in 2017 to $131.87 billion in 2019. However, revenue dipped 2.7% to $128.29 billion in 2020 as fewer customers upgraded their wireless phones due to COVID-19 lockdowns. Revenue then rebounded 4.1% to $133.61 billion in 2021 as the economy re-opened.
Earnings jumped 44.4%, from $3.74 a share (or a total of $15.3 billion) in 2017 to $5.40 a share (or $22.6 billion) in 2021.
Verizon expects its capital spending will rise from $20.3 billion in 2021 to $22.5 billion in 2022, but decline to $19.5 billion in 2023 when it completes the 5G rollout. Capital spending will fall to $17.0 billion in both 2024 and 2025.
As part of its 5G plan, Verizon purchased C-band wireless spectrum from the U.S. government for $45.5 billion. It will also have to pay a further $7.7 billion through 2024.
The company borrowed the funds it needed for the C-band purchase. That pushed up its total debt to $143.4 billion as of December 31, 2021, or a high 67% of its market cap. It also held cash of $2.9 billion.
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These big investments will help Verizon profit from the shift to remote working and cloud-based computing. Its 5G networks should reach 175 million people by the end of 2022. 5G will also let Verizon bring high-speed Internet coverage to more areas where fibre-optic networks are too expensive to build. By 2025, it expects to have between 4 million and 5 million wireless Internet users.
Due to the higher capital spending, Verizon’s free cash flow (regular cash flow less capital expenditures) will likely decline from $19.3 billion in 2021 to $16.1 billion in 2022. However, free cash flow should rebound to $21.0 billion in 2023.
Verizon has raised its dividend each year for the past 15 years. It last increased that quarterly payment in November 2021 to $0.64 a share, up 2.0% from $0.6275. The new annual rate of $2.56 a share yields a high 5.0%.
In the quarter ended March 31, 2022, Verizon’s revenues were $33.6 billion, 2.1% higher than $32.9 billion a year earlier. Excluding one-time items, it earned $5.67 billion, up 0.7% from $5.63 billion. On a per-share basis, earnings fell 0.7% to $1.35 from $1.36, on more shares outstanding.
The company will probably earn $5.41 a share in 2022, and the stock trades at just 9.5 times that estimate.
Recommendation in Dividend Advisor: Verizon Communications Inc. is a buy.