There was apparently a disconnect between Verizon Communications' (VZ 0.59%) business performance and its stock in 2021, as the telecom giant reported rising sales, more customers added, and greater profits, but shares fell 11.8% for the year, according to data provided by S&P Global Market Intelligence.
Part of the reason is its quarterly earnings numbers didn't always live up to Wall Street's expectations, which caused investors to sell off the stock when it missed analyst forecasts. Plus, Verizon carries a lot of debt on its balance sheet, over $143 billion at the end of the third quarter, and servicing that load cuts into investments it could be making in its business.
Year to date, revenue of $99.5 billion is 6.5% higher than it was the year before while net income surged more than 31% to $17.9 billion. Verizon also added over 1 billion postpaid wireless customers in 2021, a nearly 24% jump over the number of additions last year, helping it to claw back to the 1.1 billion net addition level it saw in 2019.
Verizon also pays out a healthy dividend of $0.64 per share each quarter, which currently yields a tasty 4.75% annually. The telecom has raised its payout every year for the last 15 years, and while it's not in Dividend Aristocrat territory yet (it needs 25 years of consecutive dividend hikes to achieve that), it is reliable, strong, and growing.
One of the biggest catalysts for Verizon is the rollout of 5G networks. It's been a decade since wireless download speeds were meaningfully improved, and because Verizon generates some of its best profit margins from data consumption, the cost of upgrading the infrastructure -- where it accumulated all the debt from -- will pay off for years to come.
Because Verizon is a behemoth (it has a market valuation of $221 billion), investors should go in understanding its fast-growth days are behind it, but new opportunities, like its in-home broadband service, offer it ways to keep growing in the future.
At just 10 times trailing earnings and next year's estimates, as well as being valued at less than 20 times the free cash flow it produces, which is prodigious, Verizon is a stock worth considering.
The market is apparently doing just that as it could no longer ignore the discount the telecom's stock was offering. Beginning in mid-December Verizon began making a run higher, one that continues into 2022, and it has bounced over 8% higher from those lows.