Source: PaxForex Premium Analytics Portal, Fundamental Insight
Verizon Communications is probably one of the best dividend stocks on the market today. The stock yields 6.8 percent, and the giant company shows no sign or intention of cutting its payout.
But where does Verizon get its money from, and how fast are its revenues growing? Let's find out what trends are driving this telecom giant's cash flow.
In Q4 of 2022, Verizon's total revenue grew 1.8% to $34.7 billion, but the company's two most essential segments increased differently. Consumer revenue grew by 4.2%, and business revenue grew by 1.2%. These are crucial trends to keep an eye on, but if you dig a little closer, it's clear where the money is coming from.
VZ splits revenue between wireless services, which has a 74% gross margin, and wireless equipment, which has a negative gross margin of 12.5%. Shareholders and investors want service revenues to grow as fast as possible, and this is where Verizon could see the start of some positive trends in both the consumer and business markets.
Consumer services revenue increased 5% in Q4, so the positive momentum is clear, but what matters is what's driving that growth. Verizon's number of net wireless customers fell 0.8% over the past year, from 115,395 to 114,520, but the number of fixed wireless broadband customers (5G broadband for the home) skyrocketed from 101,000 to 884,000. Fixed wireless is booming, and it's a whole new source of revenue for Verizon.
As customers sign up for wireless smartphones and fixed wireless, it gives Verizon the ability to offer streaming packages, making the product even more attractive. The company is already working with Walt Disney and Apple, and the number of such offerings continues to grow. Reselling streaming services is a high-margin business and leverages Verizon's existing customer base and sales infrastructure, so it's a great addition to the service side of the business.
A similar trend is evident on the business side, where the number of connections grew 4.8% to 28.7 million, but the number of fixed wireless connections nearly quadrupled to 568,000. Note that fixed wireless penetration in the business segment is higher than in the consumer segment, although it is still very low.
Service revenue growth of 4.7% in Q4 in the business segment is another trend that is moving in the right direction.
This year, investors will be watching the pace of service revenue growth and how quickly fixed wireless is being added to business plans.
Verizon divides its business into consumer and business segments, with consumers accounting for 77% of revenues. But in both segments, it`s service revenues that investors should be watching.
If Verizon succeeds in attracting more new customers to its fixed wireless and streaming packages, the company could increase its high-margin services business in the long run even without increasing its net customer base. We can conclude that with this P/E ratio (7.5) and a dividend yield of 6.8%, investors are severely underestimating the company's growth prospects.
As long as the price is above 38.00, follow the recommendations below::
- Time frame: D1
- Recommendation: long position
- Entry point: 38.56
- Take Profit 1: 39.00
- Take Profit 2: 40.00
Alternative scenario:
If the 38.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation:short position
- Entry point: 38.00
- Take Profit 1: 37.00
- Take Profit 2: 36.00
