Shares of Verizon are down 17% since the start of 2023, mainly because income-seeking investors are shifting to bonds, which offer similar yields. The possibility that the company will have to replace those old telephone lines with lead sheathing have also hurt the stock. However, Verizon will probably spread the costs out over many years, which should let it avoid a dividend cut. It also stands to gain as cellphone users upgrade to its faster 5G networks.

VERIZON COMMUNICATIONS INC. $33 is your #1 Income Buy for 2023. The telecom provider (New York symbol VZ; Income Portfolio, Utilities sector, Shares outstanding: 4.2 billion; Market cap: $138.6 billion; Price-to-sales ratio: 1.0; Dividend yield: 7.9%; TSINetwork Rating: Average; www.verizon.com) is the second-largest wireless carrier in the U.S. after AT&T (New York symbol T), with 143.2 million subscribers (consumers and businesses) as of June 30, 2023. It also sells traditional telephone lines, high-speed Internet and TV services.

Verizon’s revenue rose 0.8%, from $130.86 billion in 2018 to $131.87 billion in 2019, but it then fell 2.7% to $128.29 billion in 2020 due to COVID-19 disruptions.

The company sold its media operations (including Yahoo and AOL) in 2021, to private equity firm Apollo Global Management, Inc. (New York symbol APO). Verizon received $4.25 billion in cash and $750 million in preferred shares. It also purchased TracFone, which sells pre-paid and value-priced cellphone plans, for $6.5 billion. That helped lift its revenue by 4.1% to $133.61 billion in 2021. Revenue improved a further 2.4% to $136.84 billion in 2022.

Despite the uneven revenue, earnings before unusual items rose 16.1%, from $19.28 billion in 2018 to $22.39 billion in 2021. Due to more shares outstanding, per-share earnings rose at a slower rate of 14.4%, from $4.71 to $5.39. Higher operating costs and interest charges cut earnings to $5.18 a share (or a total of $21.76 billion).

In the quarter ended June 30, 2023, Verizon’s consumer division lost 136,000 wireless phone subscribers under long-term contracts (net of cancellations). However, its business division added 144,000 net new customers.

Verizon has also simplified its subscription plans and cut rates to compete with rival wireless carriers. As a result, its revenue in the quarter fell 3.5%, to $32.60 billion from $33.79 billion a year earlier. Excluding one-time items, per-share earnings fell 7.6%, to $1.21 from $1.31 on higher interest and depreciation charges.

Capital expenditures set to drop 19% this year

Verizon has largely completed the upgrade of its wireless networks to handle ultrafast 5G download speeds. As a result, capital spending should decline from $23.1 billion in 2022 to between $18.25 billion and $19.25 billion in 2023.

Those lower outlays should support Verizon’s current dividend rate of $2.61 a share, which yields a high 7.9%. For all of 2023, those dividend payments will total roughly $11 billion. That’s equal to 65% of this year’s projected free cash flow (regular cash flow less capital expenditures) of $16.8 billion. As well, a new cost-cutting plan should save $2 billion to $3 billion a year by 2025.

Meantime, the company will probably earn $4.33 a share in 2023, and the stock trades at just 7.6 times that forecast.

Verizon is your #1 Income Buy for 2023.