ii view: income play Verizon focused on 5G

This top 40 S&P 500 company by market value offers an estimated dividend yield of over 4.5%. Buy, sell, or hold?

First-quarter results to 31 March

• Revenue up 2.1% to $33.6 billion (£26.2 billion)
• Adjusted Earnings Per Share (EPS) down 0.7% to $1.35 (105p) 
• Quarterly dividend of $0.64 per share (50p) unchanged from Q4
• Unsecured debt up $614 million from the previous quarter to $137.3 billion

Guidance:

• Expects adjusted full-year earnings per share (EPS) at the lower end of its previously guided range of $5.40 to $5.55

Chief executive Hans Vestberg said:

"Our operational performance in the first-quarter further positions Verizon for long-term growth and increases our competitive standing in mobility, nationwide broadband, the value market, and above the network business solutions and applications.”

ii round-up:

US telecoms giant Verizon Communications (NYSE:VZ) today reported a better-than-feared net loss in mobile phone customers and its highest number of net broadband additions in over a decade as it continued to invest in its networks.

Net mobile phone customer losses of 36,000 were less than Wall Street estimates of closer to 50,000, an 80% improvement from a year ago and its best first-quarter phone performance since 2018. Net new broadband customers came in at 229,000. 

Verizon shares fell by just over 1% in pre-market US trading having gained around 6% year-to-date. Shares for rival T-Mobile US (NASDAQ:TMUS) are up by close to 14% over that time and AT&T (NYSE:T) has fallen by close to 18%. 

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A 2.1% gain in total revenues to $33.6 billion marginally beat analyst estimates, with virtually flat adjusted EPS versus the first quarter of 2021 broadly in line with forecasts. 

Total wireless service revenue grew by 9.5% during the period, aided by its prior takeover of network provider TracFone.  

Ongoing investment across its networks is expected by management to generate an incremental $14 billion of service and other revenue by 2025. 

Its 5G ultra-wideband now covers approximately 113 million people, with the ability to deployment to an additional 40 million people in over 30 new markets available. Verizon expects that over 75% of its growth over the next four years will come from 5G mobility and nationwide broadband.

Consumer related revenues rose by almost 11% to $25.3 billion, more than offsetting a near 1% fall in business related revenues. Second quarter results are scheduled for 22 July.  

ii view:

Formerly Bell Atlantic, the company began trading under the Verizon name in July 2000. Today it delivers communications and information to both consumers and businesses across the US. Its current goals include expanding its 5G leadership in the US and maintaining a healthy balance sheet. Intense competition provides the backdrop for the US telecoms sector. Verizon’s previous move to offer a free one-year subscription to Disney’s streaming service competes with AT&T’s tie-up with HBO. 

For investors, generating a return on major 5G investments now occupies management's time. Costs for businesses generally are rising, competition remains intense, while previous tie-ups with content providers have added a further cost and layer of consideration. 

More favourably, the use of data services looks unlikely to disappear anytime soon, with Verizon investing heavily in its network offerings. The pandemic has arguably increased the need for fast data from more locations, while its services have debatably become a day-to-day requirement rather than a nice to have. In all, and while high competition should not be forgotten, a historic and estimated future dividend yield of over 4.5% is likely to provide ongoing appeal to income investors.

Positives

• Verizon is rolling out its 5G service 
• Attractive dividend (not guaranteed)

Negatives:

• Intense competition
• Unsecured debt of $137.3 billion

The average rating of stock market analysts:

Strong hold