Please ensure Javascript is enabled for purposes of website accessibility

Verizon's Slow and Steady Machine Ends 2019 on a High Note, Still a Top Dividend Stock

By Nicholas Rossolillo – Feb 1, 2020 at 3:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares are a reasonable value even as 5G network expenses weigh.

The mobile business isn't the high-growth industry of times past, but Verizon (VZ -1.03%) continues to chug along as it builds out the next-generation 5G network. Net subscriber additions in the fourth quarter accelerated from a sluggish start early in 2019, the media group (made up of AOL and Yahoo! assets scooped up a few years ago) stabilized after an extended period of decline, and net debt ended down $3.72 billion and close to management's long-term target. 5G is still a work in progress, and Verizon isn't likely to reenter growth mode anytime soon, but solid performance means the 4.1%-yielding dividend is still a good pick for investors looking to generate some income.  

Promotions lead to higher retail additions

First up, on the consumer side, net wireless subscriber additions of 731,000 and a 6.3% wireless upgrade rate helped push segment revenue up 2% in Q4 to $24.2 billion. Management credited its ongoing promotional activity for the increase, specifically the Disney+ (DIS -2.60%) streaming service bundle for customers with unlimited data plans. Those gains were offset by continued weakness in the FiOS wireline business. Revenues were flat year over year, with more high-speed internet customers offsetting traditional phone and TV cord-cutting.

Four young people standing against a red wall using smart phones.

Image source: Getty Images.

It was a similar story on the business end, with 396,000 net wireless adds getting slightly offset by wireline voice net subscriber losses of 99,000. Even so, business segment revenue of $8.07 billion in the quarter notched a 1% increase. Media Group sales of $2.1 billion were flat -- not great, but better than the negative territory of early 2019. Altogether, wireless strength helped Verizon manage modest growth in the last year.  

Metric

Full-Year 2019

Full-Year 2018

Change

Revenue

$131.9 billion

$130.9 billion

1%

Adjusted earnings per share

$4.81

$4.71

2%

Capital expenditures

$17.9 billion

$16.7 billion

7%

Free cash flow

$17.8 billion

$17.7 billion

1%

Data source: Verizon.  

The business segment is old and tired, for now

Of course, much of these results are built on Verizon's 4G network, and after a decade the growth there is scant and highly susceptible to competitive forces as the company dukes it out with AT&T (T -1.42%) and T-Mobile (TMUS -2.01%). Things could start to pick up in 2020, though, as Verizon's 5G -- currently available in parts of 34 cities -- rolls out in more markets.  

While many consumers are excited about the prospect of near-gigabit data speeds on their phones, from an investment perspective it's Verizon's business segment that is set to benefit the most from 5G. Another $17 billion to $18 billion in expected capital expenditures in the year ahead will support, among other things, the continued development of the new network. CEO Hans Vestberg said on the earnings call that many businesses are anxious to get access to the next-gen wireless service, and demand should be a key driver of Verizon's growth.  

Early results have thus far been promising, with 5G use cases powering things like a Corning (GLW -1.33%) fiber-optic cable factory and Verizon partnering with Amazon's (AMZN -3.01%) cloud computing segment Amazon Web Services (AWS) to bring early 5G access to the network edge in Chicago. More coverage should equate to more deals like this for Verizon's sleepy business segment and expanding what's possible for its mobile business.  

As for 2020, management said to expect revenue growth in the low-to-middle single digits and adjusted earnings growth of 2% to 4%. It's not setting the world ablaze, but while 5G waits in the wings, Verizon's leading network is still best in class and handily supporting the 4.1%-a-year dividend payout.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients own shares of AT&T, Verizon Communications, and Walt Disney. The Motley Fool owns shares of and recommends Amazon and Walt Disney. The Motley Fool recommends Corning, T-Mobile US, and Verizon Communications and recommends the following options: long January 2021 $60 calls on Walt Disney and short April 2020 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$39.52 (-1.03%) $0.41
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$99.50 (-2.60%) $-2.66
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$132.33 (-2.01%) $-2.72
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$113.78 (-3.01%) $-3.53
AT&T Inc. Stock Quote
AT&T Inc.
T
$16.01 (-1.42%) $0.23
Corning Incorporated Stock Quote
Corning Incorporated
GLW
$30.31 (-1.33%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.