ii view: Verizon chasing payback on massive 5G investment

New 5G networks have just gone live and the shares offer an income yield of over 4.5%. Buy, sell or hold?

Fourth-quarter results to 31 December

• Adjusted revenue up 4.8% to $34.1 billion (£25.2 billion)
• Adjusted earnings per share (EPS) up 8.3% to $1.31 (97p) 
• Quarterly dividend of $0.64 per share (47p) unchanged from Q3
• Total 2021 dividend of $2.535 (£1.88), up from $2.485 (£1.84) in 2020

Chief executive Hans Vestberg said:

"2021 was a transformational year for Verizon that will serve as a catalyst for us. We delivered on all of our goals in 2021 and made great progress on our five paths of growth, finishing the year with strong operating and financial momentum. We are laser focused on executing our 5G strategy and providing value to our customers, shareholders, employees, and society, as 2022 will be the most exciting year yet for Verizon."

ii round-up:

US telecoms giant Verizon Communications (NYSE:VZ) today reported forecast beating fourth-quarter earnings as it continues to expand its 5G mobile phone customer base. 

Quarterly adjusted earnings per share of $1.31 surpassed analyst forecasts of nearer $1.29, with 558,000 net new retail phone additions added to give it almost 143 million retail connections. More than one in three wireless phone customers now have 5G-capable devices on its network.

Verizon shares fell marginally in early US trading, leaving them down around 10% over the last year. Shares for rival AT&T (NYSE:T) are down by a similar amount over that time, while rival T-Mobile US (NASDAQ:TMUS) is down almost 20%.   

Accompanying management guidance for the full year 2022 looks for adjusted profit growth of between 2% to 3%, with earnings per share of between $5.40 to $5.55. That’s up from earnings of $5.39 for the full year 2021. 

Since 2018, Verizon has been pursuing a target of $10 billion in cumulative cash savings by 2021, a target it achieved early in the year.

• Stockwatch: exciting times for these two shares
• Where to invest in Q1 2022? Four experts have their say

During 2021, Verizon and rivals won bids under the US government’s auction of its C-Band spectrum. Just days ago, Verizon switched on area networks using the new spectrum, giving around 90 million people 5G access, including major cities on both the East and West coast. It brings to life an invest spend of over $40 billion for Verizon. 

Consumers with compatible phones could now potentially enjoy download speeds 10 times faster than before. 

In December, Verizon declared a fourth-quarter dividend of 64 US cents, giving a total for 2021 of $2.535 per share, up from $2.485 in 2020. 

ii view:

Formerly Bell Atlantic, it 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 (NYSE:DIS) streaming service competes with AT&T’s tie-up with HBO. 

For investors, network operators have arguably become commoditised. Price is now a key consumer consideration. Generating a return on major 5G investments now occupies management time, while tie-ups with content providers have added a further cost and layer of consideration. 

• Six value share tips for 2022 – and beyond
• Friends & Family: ii customers can give up to 5 people a free subscription to ii, for just £5 a month extra. Learn more

That said, a historic and estimated forward dividend yield of over 4.5% remains highly attractive in an ultra-low interest rate world. The use of data services is here to stay, while Verizon has invested heavily in its 5G offering. In all, despite intense competition, defensive income qualities and potential 5G data growth offer firm attractions. 

Positives

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

Negatives:

• Intense competition
• Unsecured debt rose year-over-year by $18.2 billion to $136.7 billion

The average rating of stock market analysts:

Strong hold