Source: PaxForex Premium Analytics Portal, Fundamental Insight

Verizon Communications kicked off Monday, April 22, on a subdued note, with its shares taking a slight dip in response to its first-quarter earnings report. Investors seemed unimpressed by the results, resulting in a modest 3% decline in the stock price.

While Verizon may not be experiencing rapid growth like some other companies, it boasts reliability as a well-established player in the telecommunications sector. One of its standout features is its track record of consistently increasing dividend payouts for 17 consecutive years. Furthermore, with its current valuation, Verizon offers an attractive dividend yield of 6.8%.

Now, the question arises: Is Verizon a viable option for investors seeking a dependable dividend stock? To answer this, let's examine the factors contributing to its promising future prospects alongside the challenges it currently faces. Verizon stands as the dominant force among America's telecommunications giants, leading the pack with its robust revenue stream ahead of competitors like AT&T and T-Mobile US.

The company's substantial investments in advancing its wireless network to cutting-edge 5G technology have proven fruitful. In the first quarter alone, Verizon witnessed a notable 3.3% year-over-year increase in total wireless service revenue. Notably, Verizon's 5G network has facilitated a fixed wireless service, attracting a substantial subscriber base of 3.4 million by March, with over 3 million joining in just the past two years.

Switching phone or broadband services is no small feat; it often involves significant inconvenience, deterring many consumers even in the face of potential cost savings. Yet, Verizon's consistent subscription revenue stream has enabled the company to uphold an impressive streak of dividend payout increases spanning 17 years.

Despite modest growth expectations from the market, Verizon's stock saw a decline following the announcement of its first-quarter results, trading at just 8.5 times the midpoint of management's projected range for adjusted earnings this year.

While Verizon may not be experiencing rapid expansion, patient investors seizing the opportunity to acquire the stock at such a modest earnings multiple stand to reap significant returns over the long haul, provided earnings continue to trend positively.

Verizon's potential for stellar performance hinges on its ability to bolster its bottom line, yet recent quarters have seen a decline in earnings. Last year witnessed a 6.9% drop in adjusted earnings to $4.71 per share, with indications pointing to a continued downward trajectory.

In the first quarter of the current year, adjusted earnings shrank by 6.8% year over year, with management's projected range for adjusted earnings this year still falling $0.01 short of the earnings recorded in 2023.

Despite Verizon's monumental acquisition of Vodafone's stake in Verizon Wireless over a decade ago, leaving a substantial net unsecured debt of $126 billion on its books as of March. Such a hefty debt burden significantly constrains Verizon's cash flows, leaving little room for new investments or dividend increases.

While Verizon boasts an impressive 17-year streak of annual dividend raises, the pace of these increases has lagged behind inflation, with a mere 10.4% rise over the past five years. Consequently, long-term investors find themselves receiving effectively less than they did in 2019.

Furthermore, in 2023, Verizon allocated a substantial 85% of its generated free cash flow toward meeting its dividend obligation, leaving minimal cash for debt reduction or future investments. This predicament also restricts the company's ability to raise its payout beyond the pace of earnings growth. Should earnings stagnate or contract further, Verizon may face the necessity of reducing its dividend payout.

For younger investors seeking rapidly growing dividend payouts, alternative options may be more suitable. However, retirees in search of a high-yield stock to enhance their passive income stream may find Verizon a viable choice. Despite stagnant earnings growth, Verizon benefits from relatively stable cash flows from its mobile and broadband subscriber base, providing a strong likelihood of maintaining its current payout levels over the long term.

As long as the price is above 37.00, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 39.41
• Take Profit 1: 41.00
• Take Profit 2: 43.00

Alternative scenario: 

If the 37.00 level is broken-down, follow the recommendations below:     

• Time frame: D1
• Recommendation: short position
• Entry point: 37.00
• Take Profit 1: 35.00
• Take Profit 2: 33.00