Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investors looking for some stability in a raging stock market plagued by omicron and inflation fears should look to Verizon Communications. This telecom titan has resiliently weathered many challenges in the pandemic era, from store closures in 2020 to recent aviation safety concerns over the deployment of the C-band spectrum on the new 5G network.
In addition, Verizon enters 2022 with momentum from a successful 2021. These metrics, combined with other attractive features, make Verizon an attractive investment. Here are a few factors that make Verizon an attractive buy.
First, of course, is the robust dividend.
One of Verizon's main attractions is its dividend, with a yield of 4.93% as of this writing. Verizon has demonstrated that it is one of the most reliable dividend stocks in the world.
When the pandemic forced some companies, such as Ford Motor Company, to cut or cancel dividends, Verizon maintained its streak of 15 consecutive years of dividend increases. That consistency has been maintained as the pandemic-induced store closures have driven revenues down to $128.3 billion in 2020, down from $131.9 billion in 2019.
Verizon's dividend is secure because of the telecommunications company's continued ability to generate free cash flow. Even with lower revenues in 2020, Verizon ended the year with $23.6 billion in free cash flow, up 32.4 percent from 2019. In 2021, Verizon accumulated a free cash flow of $17.3 billion in three quarters.
Second is the company's strong performance.
Verizon's consistency in generating free cash flow is just one of the company's strengths. In 2021, the company delivered impressive performance across some key metrics, exceeding not only 2020's results but also those of 2019, the year before the pandemic.
For example, Verizon's 2021 three-quarter revenue reached $99.5 billion, up from $93.6 billion in 2020 and $97.1 billion in 2019. The revenue growth was driven by Verizon's ability to attract customers despite intense competition in the U.S. telecommunications market, where competitors such as AT&T are also enjoying success.
In the third quarter, the company had a net increase of 699,000 customers in the wireless postpaid subscriber segment, the most valuable type of customer in the telecommunications industry. This result far exceeded the previous year's figure (553,000), as well as 601,000 in 2019.
Another contributing factor to revenue growth was the increase in remote work, which contributed to the introduction of Verizon's Fios Internet service. In the third quarter of 2020, Fios connected a total of 144,000 Internet users, the highest number since the fourth quarter of 2014. In the third quarter of 2021, revenue from Fios grew 4.3 percent year over year to $2.9 billion as the service added 98,000 Internet users, and Verizon expects further growth in that business.
Verizon combines such excellent performance with financial prudence. When the pandemic hit in 2020 and lockdowns came, Verizon quickly began to accumulate cash. At the end of 2020, the company had $22.2 billion in cash and cash equivalents, up from $2.6 billion in 2019. Verizon's financial management is now focused on balancing dividend payments and investments in the business with debt reduction, which grew in the first quarter of 2021 when the company spent $52.9 billion in a government auction to get more wireless spectrum for its 5G network.
And, of course, we have to keep in mind the current growth opportunities.
Verizon's excellent performance in 2021 could continue thanks to the emergence of 5G. Consumer demand for 5G began to grow in 2021. At the end of the third quarter, more than a quarter of Verizon's consumer base was using 5G-enabled devices, up from about 20 percent in the second quarter. This adoption of 5G led to a 34.8% year-over-year increase in hardware sales in 2021 for three quarters. As more Verizon customers migrate to 5G-enabled devices, hardware revenue will continue to grow.
Along with upgrading their phones, the advent of 5G speed networks has also forced customers to upgrade their data plans. At the end of the third quarter, more than 30 percent of Verizon subscribers were using more expensive unlimited data plans. That percentage was even higher among new customers, 66% of whom chose an unlimited data plan.
That trend helped Verizon earn $17.1 billion in wireless service revenue in the third quarter, up from $16.4 billion a year earlier. The company is projected to see further growth in wireless service revenue and other revenues in 2022 and beyond as it expands and deploys 5G networks. In 2022, Verizon is projecting at least 3 percent growth in that revenue and at least 4 percent growth starting in 2024.
The company's growth based on 5G technology, combined with a strong growth rate in 2022, makes a strong investment case. Add to that a robust dividend with a solid track record of upside that helps act as a hedge against inflation, which is now in full swing, and all of these factors make this telecom company's stock an attractive investment in the long run.
As long as price is above 51.00 follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 54.02
- Take Profit 1: 56.00
- Take Profit 2: 58.00
Alternative scenario:
If the level of 51.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 51.00
- Take Profit 1: 49.00
- Take Profit 2: 48.00
