Verizon's Earnings Disappoint; Dividend Doesn't

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Verizon (NYSE: VZ  ) released its fourth-quarter earnings statement today, and a quick look at its share price -- dropping almost 3% in the first half-hour of the day -- will tell you it wasn't received well. But how bad could it really be? After all, it did show company-record quarterly revenue growth of 7.7% year-over-year.

First off, Verizon's adjusted EPS (non-GAAP) of $0.52 for its consolidated operations is only a penny less than the estimate that Businessweek's poll of analysts came up with. But that EPS number is an adjustment upward to account for a $0.71-per-share loss the company took for non-cash pension items – that's a serious impact.

Breaking Verizon's earnings down into its two main segments, wireless and wireline, will give us a better picture of the quarter.

Total operating revenues for Verizon Wireless for the quarter were $18.25 billion, an increase of 13% over the same quarter last year. That was helped by the net gain of 1.5 million retail subscribers, of which 1.2 million are the coveted postpaid (on contract) customer.

But in spite of those gains, operating income was down almost 11% over that same period. Some of this can be attributed to the substantial amount of the iPhone's cost that Verizon – as well as AT&T (NYSE: T  ) and Sprint Nextel (NYSE: S  ) -- have to write off as a subsidy to lure iPhone-craving subscribers. The paradox here is that the more iPhones they sell, the thinner their operating margins becomem.

One thing to remember about the Verizon Wireless segment of Verizon is that it is a joint venture between Verizon  and Vodafone (NYSE: VOD  ) , with Verizon owning 55%. Verizon Wireless has generated enough cash that will payout a $10 billion dividend (split 55/45) this month to its parent companies.

Verizon managed to slow down its rate of losing fixed-line phone customers, but it's a growing problem area for all wireline providers as mobile phone users drop their home phone service. Although the company was able to post a net increase in FiOS Internet and Video subscribers, total wireline operating revenues were down 1.5% over the same quarter last year, and down 1.3% year-over-year.

Bottom line
Even though Verizon disappointed the analysts, and in spite of its iPhone subsidy costs and wireline weakness, Verizon Wireless is still far ahead of all other wireless providers in 4G LTE coverage. It was also able to increase its wireless spectrum holdings, unlike rival AT&T, which got itself stuck in a nine-month long regulatory quagmire in its quest to annex T-Mobile.

And don't forget Verizon's $0.50-per-share quarterly dividend (a projected 5.2% yield), which it is still in a strong position to pay with a free cash flow to dividend payout ratio of 41% for the year.

Remember, dividends provide a nice buffer for stock market volatility, but Verizon isn't the only great dividend-payer out there. For more stocks that can give investors a stronger sense of security, get the special report prepared by The Motley Fool Stock Advisor newsletter team: "Secure Your Future With 11 Rock-Solid Dividend Stocks." It's free, so click here to access your copy while it's still available.

Fool contributor Dan Radovsky owns shares of AT&T. Motley Fool newsletter services have recommended buying shares of Vodafone Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 25, 2012, at 9:26 PM, almypal1217 wrote:

    The bad part is Verizon has to share its profits with Vodifone too bad... at&t gets to keep all its profits therefore a much better investment

  • Report this Comment On January 25, 2012, at 9:31 PM, Raymondpoppy wrote:

    Maybe consumers will begin to notice that AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon and AT&T (both in the top 5 for corporate lobbying) get all that money to run commercials 24x7, pay out huge “fat cat” executive bonuses and hire armies of lawyers and lobbyists to try to push the U.S. market into a wireless industry duopoly -- the American consumer. This is how AT&T and Verizon fashion themselves as brilliant … with their political use of money.

    According to the report “Corporate Taxpayers & Corporate Tax Dodgers 2008-10,” two of the 25 companies with the largest total tax subsidies were AT&T at #2 ($14.5 billion) and Verizon at #3 ($12.3 billion). Also, there were 30 corporations that paid less than nothing in aggregate federal income taxes over the same period. These 30 companies, whose pretax U.S. profits totaled $160 billion over the three years, included Verizon. The report states the laws that allow this were not enacted in a vacuum, but rather were adopted in response to relentless corporate lobbying, threats and campaign support.

  • Report this Comment On January 26, 2012, at 2:33 AM, garifolle wrote:

    & Raymondpoppy

    "The report states the laws that allow this were not enacted in a vacuum, but rather were adopted in response to relentless corporate lobbying, threats and campaign support."

    I doubt that this power of corporate lobbying will ever change, whatever Obama asked (or naively wished once again) in his State of the Union.

    If ever Romney was elected, at last there would be less lobbying costs for corporate America, because Wall Street would officially become govern this great country with the nice logo:

    "We the people".

  • Report this Comment On January 26, 2012, at 2:35 AM, garifolle wrote:

    Sorry for the typo:

    ...would officially govern...

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