Verizon Communications (NYSE: VZ) is one of the largest telecommunications companies in the world. The company’s stock has underperformed the broader market over the past few years, but there are several reasons why Verizon is a strong buy right now.
1. Solid Financial Performance and Strong Dividends
Despite operating in a highly competitive industry, Verizon has delivered solid financial results quarter after quarter.
In its most recent Q3 2022 earnings, the company generated $34.2 billion in consolidated revenue. Net income came in at $5 billion, down 23% from last year due to higher expenses, but still representing strong profitability.
Verizon has an excellent track record of paying dividends, having paid out dividends for 15 consecutive years. Its dividend yield currently stands at a healthy 6.5%, providing investors with a steady income stream.
With a high dividend payout ratio of 51%, Verizon’s dividend looks safe for the foreseeable future.
2. Increased Focus on 5G Rollout
5G represents the next evolution in wireless technology, enabling significantly faster data speeds, lower latency, and the ability to connect many devices simultaneously.
As one of the largest wireless carriers in the U.S., Verizon is making big investments in 5G and rapidly expanding its next-generation network.
Verizon expects to spend $10 billion in capex in 2022 focused primarily on 5G deployment. As of Q3 2022, Verizon’s 5G network covered more than 230 million people in over 3,400 cities across the country.
Widespread 5G coverage gives Verizon a key competitive advantage in offering the most advanced wireless services to consumers and business customers.
3. Growth in Wireless and Broadband Customers
Verizon is seeing healthy growth in its core wireless business as well as its fiber-optic broadband offerings.
In Q3, Verizon added 8,000 net new wireless phone subscribers, 353,000 postpaid smartphone net adds, and 37,000 Fios internet customers.
The company is attracting new wireless customers thanks to the strength of its 5G network. Meanwhile, demand for reliable high-speed internet is rising, which benefits Verizon’s expanding fiber-optic network.
With strong customer momentum, Verizon’s core revenue streams look poised for continued growth.
4. Reasonable Valuation
Verizon stock trades at just 8.5 times forward earnings, a very reasonable valuation for a company of Verizon’s size, financial strength, and market position.
The stock’s price-to-earnings ratio is well below its five-year average P/E of 10.4x.
Verizon has an attractive valuation profile relative to telecom peers like AT&T and T-Mobile as well. Its forward P/E is also markedly lower than the S&P 500 index’s forward P/E of around 17x. Verizon appears undervalued at current levels.
5. Outlook Remains Strong Despite Competitive Pressures
The U.S. telecom industry is highly competitive between Verizon, AT&T, and T-Mobile. However, Verizon remains well-positioned to maintain its leading market share.
The company is investing heavily in next-generation 5G networks to provide superior coverage and faster speeds compared to rivals.
Verizon also benefits from its strategic focus on high-value customers, diversified revenue streams including business services, and relatively low churn rates. While competition will remain fierce, Verizon has the scale, assets, and execution ability to deliver continued growth.
With its strong dividend, reasonable valuation, 5G leadership, and solid execution, Verizon stock appears poised for upside. The company generates steady profits and cash flow even in a challenging competitive environment.
For investors looking for a mature, defensive telecom name with an excellent dividend, Verizon stands out as a top buy right now. The stock offers an attractive mix of income and growth potential at current levels.