Investors seeking a measure of stability from a stormy stock market roiled by omicron and inflation fears should consider Verizon Communications (VZ -0.68%). The telecom titan has steadfastly weathered an array of challenges during the pandemic era, from store shutdowns in 2020 to recent aviation safety concerns over the rollout of C-band spectrum in its new 5G network.
In addition, Verizon enters 2022 with the momentum of a strong 2021. This performance, combined with other appealing attributes, makes Verizon an attractive investment. Here are the three key factors that make Verizon a buy.
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1. A reliable dividend
One of Verizon's primary appeals is its dividend, which sports an alluring yield of 4.93% at the time of this writing. Verizon has demonstrated that it's among the most reliable dividend stocks around.
When the pandemic's toll caused some firms, such as Ford Motor Company, to cut or eliminate dividends, Verizon maintained its streak of 15 consecutive years of dividend increases. This consistency continued amid pandemic-induced store closures causing 2020 revenue to drop to $128.3 billion from 2019's $131.9 billion.
Verizon's dividend is secure because of the telecom's consistent ability to generate free cash flow. Even with lower revenue in 2020, Verizon exited that year with $23.6 billion in free cash flow, up an impressive 32.4% from 2019. In 2021, Verizon amassed free cash flow totaling $17.3 billion through three quarters.
2. Strong company performance
Verizon's free cash flow-generating consistency is just one area of strength. In 2021, the company experienced stellar performance across a number of key metrics, exceeding not only 2020 results, but also 2019's pre-pandemic numbers.
For instance, Verizon's 2021 revenue through three quarters reached $99.5 billion, up from 2020's $93.6 billion, as well as 2019's $97.1 billion. The rise in revenue was driven by Verizon's ability to capture customers despite a highly competitive U.S. telecom market where rivals, such as AT&T, also enjoyed success.
The company's third-quarter net additions in its postpaid wireless customer segment, the most valuable customer type in the telecom industry, totaled 699,000. This result was far higher than the prior year's 553,000, and also exceeded 2019's 601,000.
Another revenue contributor was the rise in remote work, which drove the adoption of Verizon's Fios internet service. In Q3 of 2020, Fios added a total of 144,000 internet customers, its highest net additions since the fourth quarter of 2014. In Q3 2021, consumer Fios revenue jumped 4.3% year over year to $2.9 billion as the service added 98,000 internet customers, and Verizon expects continued growth in this business.
Verizon combines this excellent performance with fiscal prudence. When the pandemic struck and lockdowns ensued in 2020, Verizon quickly began stockpiling cash. It ended 2020 with $22.2 billion in cash and equivalents compared to $2.6 billion in 2019. Verizon's management of its finances now focuses on balancing dividend payments and investing in its business with reducing debt, which ballooned in the first quarter of 2021 when it spent $52.9 billion at a government auction to secure a more wireless spectrum for its 5G network.
3. Ongoing growth opportunity
Verizon's excellent 2021 performance is poised to continue thanks to the advent of 5G. Consumer demand for 5G came on strong in 2021. At the end of Q3, more than a quarter of Verizon's consumer base was using a 5G-enabled device, up from about 20% in Q2. This 5G adoption led to a 34.8% year-over-year increase in 2021 equipment sales through three quarters. As more of Verizon's customers upgrade to 5G-enabled devices, equipment revenue will continue to do well.
Along with upgrading their phones, the arrival of speedy 5G networks has led customers to also upgrade their data plans. More than 30% of Verizon's accounts were on higher-priced unlimited data plans at the end of Q3. That percentage was even higher among new accounts, with 66% opting for unlimited data.
This trend helped Verizon earn $17.1 billion in wireless service revenue in Q3, compared with $16.4 billion the year prior. The company's wireless service and other revenue is forecasted to see further growth in 2022 and beyond as 5G network expansion and adoption continues. For 2022, Verizon projects at least 3% growth in this revenue, and at least 4% growth starting in 2024.
The company's 5G-powered growth, combined with its strong momentum entering 2022, provides enticing reasons to invest. Add in its reliable dividend with a steady track record of increases, which helps to act as a hedge against the inflation in our midst, and these factors make this telecom stock a compelling investment over the long term.
