Shares of Verizon Communications (NYSE:VZ) are kicking off 2021 with a whimper. The company's revenue increased 0.2% year over year in the fourth quarter of 2020 to $34.7 billion, and earnings per share declined 10% to $1.11. America's largest mobile network is treading water, and other communications services -- including rival T-Mobile (NASDAQ:TMUS), which was first to market with nationwide 5G -- are making fast headway during the pandemic. 

But for investors looking for investment income, Verizon stock's current 4.3% dividend yield remains a solid pick.  

Don't expect much excitement in 2021

Considering the world was cast into chaos in the last year, Verizon's financial results from 2020 are respectable. Overall, revenue and earnings were stable, underscoring the staple that mobile connectivity has become among consumers and businesses alike. Along the way, Verizon spent $18.2 billion in capital expenditures, including on upgrades in support of its new 5G network.  

Metric

Full-Year 2020

Full-Year 2019

Change

Revenue

$128 billion

$132 billion

(3%)

Earnings per share

$4.30

$4.65

(8%)

Free cash flow

$23.6 billion

$17.8 billion

33%

Data source: Verizon Communications.  

In spite of pedestrian results, the company did report another increase in net connections. There were 357,000 consumer and 346,000 business wireless postpaid net additions in Q4, and 95,000 total net Fios Internet additions -- the highest rate of growth for Fios since 2014 as high-speed internet at home is prioritized by households. The growth rates are being outpaced by T-Mobile (which has yet to report on Q4 as of this writing but added 1.98 million wireless postpaid net additions in the third quarter), but for now, Verizon is still in the lead as the largest telecom in the U.S.

Four people standing against a wall using smartphones.

Image source: Getty Images.

Though it was the last to roll out nationwide 5G, mobility researcher RootMetrics recently reported Verizon's network is still on average the fastest and most reliable network in the U.S., well ahead of AT&T (NYSE:T) and T-Mobile. T-Mobile is quickly closing the gap, though, and has far less debt. That would give the smaller (for now) and scrappy network an advantage as it touts its lower-cost and fast-improving service to lure in subscribers. Verizon, for its part, ended 2020 with nearly $119 billion in unsecured debt -- an increase of $19.3 billion from a year ago.  

Business is stable, but don't expect a big rally in the year ahead as Verizon laps initial effects from the pandemic. Its outlook for 2021 calls for about a 2% year over year increase in total revenue, and a 2% to 5% increase in earnings per share (when adjusted for one-time special items).  

A well-funded dividend payout, but not much more

The real story here, though, is Verizon's free cash flow (revenue minus cash operating expenses and capital expenditures). As 5G expands and businesses especially find new use cases for next-gen mobility, Verizon has been able to squeeze extra profitability out of its network. Free cash flow generated grew nearly 33% from 2019 to $23.6 billion, giving the company plenty of room to service its sizable burden of indebtedness, increase capital expenditures in support of 5G upgrades if necessary (it expects another $17.5 billion to $18.5 billion in capex in 2021), and pay its dividend.  

Specifically, the current dividend payout cost Verizon $10.2 billion last year. At less than half of free cash flow, the shareholder payout is handily covered and has room to grow over time. For investors looking for growth, T-Mobile -- or better yet, a cloud-based software communications service -- is a better bet. The growing burden of debt could give Verizon some headaches down the road if it limits the company's ability to keep up with ever-shifting business trends, but it's nonetheless still worth owning at this juncture for investors looking to generate some stable income.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.