Verizon Stock Offers a High Dividend Yield at a Good Price
Morningstar’s analyst expects the company to deliver consistent results over time—and the stock is undervalued, too.
A relentless focus on network strength over the past 15 years has put Verizon in an enviable position. Its wireless network provides the broadest coverage in the industry, and its reputation with customers is sterling.
With the largest customer base in the U.S., Verizon Wireless is also the most efficient carrier in the industry, delivering far better profitability than its rivals.
While other wireless carriers are tangled up in merger activity, Verizon is relentlessly pushing forward in its core business, expanding its fiber-optic network and deploying 5G wireless technology.
Wireless technology is dramatically lowering the cost to build and maintain a network. Rival carriers, especially T-Mobile, have a clear path to rapidly deploy new spectrum and technology to add coverage and capacity. Verizon’s network leadership is a thing of the past.
Verizon’s fixed-line business is a disaster, earning minimal profits today and facing years of high costs supporting declining businesses.
Verizon’s balance sheet isn’t the fortress it once was. Paying down debt will limit strategic flexibility and shareholder returns.
Verizon Communications VZ is primarily focused on the wireless business, where it believes its networks provide multiple avenues for growth. The company has taken steps to ensure it remains well positioned in the traditional wireless business, building fiber deeper into major metro areas, acquiring a huge chunk of spectrum in 2021, and ramping up spending to put that spectrum to use. While we expect only modest growth, we believe Verizon will deliver consistent results over the long term.
Verizon has long prided itself on network quality, investing consistently in wireless as well as fixed-line technology. The company has built its brand reputation around these networks, attracting a large and loyal customer base. In the wireless business, the company holds roughly 40% of the U.S. postpaid phone market, about a third greater than either AT&T T or T-Mobile TMUS. Leading scale enables Verizon to generate the highest margins and returns on capital in the industry, despite heavy investment. Also, the merger of T-Mobile and Sprint has improved the industry’s structure, leaving three players with little incentive to price irrationally in search of short-term market share gains. We believe Dish Network DISH, which plans to become the fourth nationwide carrier, is too small to have much impact.
Verizon has divested much of its traditional residential fixed-line footprint, leaving primarily operations in the Northeast. It also holds extensive fiber assets in most major U.S. metro areas that have historically served enterprise customers. The company has undertaken a major fiber expansion project over the past couple of years to extend capacity into more locations around the United States, with the primary goal of supporting its wireless networks while also enabling it to offer new services. We expect this approach will allow Verizon to maintain a strong network position in the traditional wireless business while serving new markets such as fixed wireless broadband and edge computing. We expect these offerings will remain small but still deliver incremental revenue to lift returns on network investments.
Fair Value Estimate: $59
Star Rating: 4 Stars
Economic Moat Rating: Narrow
Moat Trend Rating: Stable
Michael Hodel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.