Shares of Verizon (VZ -0.68%) have been stuck in neutral for years. Investors have been concerned about the cost of building out wireless networks and the $52.9 billion it spent last year just to increase its spectrum. In a world where software is king, capital-intensive businesses like telecommunications are out of favor.
But there are solid reasons to like Verizon stock as a long-term dividend investor. The company's core wireless business is very profitable and growing steadily. It's added home broadband to the mix, and pays a hefty 4.7% dividend yield. I think there's an unappreciated upside for investors from here.
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The core is strong
Wireless cellphone service in the U.S. isn't going anywhere. In the last five years, the biggest change in the market is going from four competitors to three after Sprint and T-Mobile (TMUS -0.08%) merged. The reduction in the competition should mean higher margins over time for Verizon, which is exactly what we've seen.
VZ Revenue (TTM) data by YCharts.
Revenue growth hasn't been very meaningful, but keep in mind that the figures above don't include any real impact from 5G. As a starting point, I like where Verizon is strategically in the telecommunications business.
Why 5G changes the game
Over the last decade, Verizon has been competing with a handful of other companies to provide wireless cellphone service, but little else. Verizon tried to tack on Yahoo! and AOL as adjacent assets, while AT&T (T -1.37%) tried to combine with Time Warner. Both strategies have been questionable at best and disastrous at worst, resulting in an unwinding over the last year.
Instead of growing in adjacent businesses where it has no expertise, Verizon is now growing on the back of 5G wireless. Below is a look at the net customer additions in consumer wireline (Fios and DSL) and fixed wireless (including 4G and 5G home internet).
| Segment | Q2 2021 | Q3 2021 | Q4 2021 |
|---|---|---|---|
| Fios and DSL | 70,000 | 74,000 | 28,000 |
| Fixed Wireless | 23,000 | 55,000 | 78,000 |
Source: Verizon Q4 2021 earnings report.
Management hasn't been overly optimistic publicly about home wireless broadband, known as Verizon Home, but I think it's a game-changer based on personal experience with the service. I recently started using Verizon 5G in my home, and I'm getting faster and more reliable service than cable broadband internet from Comcast for less money. That's a compelling offering for the 115.4 million customers with Verizon service.
Growth could snowball from here
I also think there are multiple growth opportunities that investors aren't even thinking about yet. Autonomous driving could have tremendous value as it spreads across the country, and so could new devices like 5G wireless smartwatches and glasses. As companies bet on the metaverse, Verizon that will connect these services to the world.
On top of these new markets, Verizon could bundle streaming services with wireless phone and home service. It's starting to include some of these bundles, but it makes sense to lean into them as the company adds more services beyond phone connectivity.
Getting in cheap
The shares of Verizon are trading for under 10 times 2021 earnings and yield 4.7% from the dividend. Those are great values in any market, but I think Verizon is entering a growth phase as 5G wireless reaches into the home and allows for innovations that weren't possible with slower wireless technology. This may not be a well-loved stock for investors today, but there's a lot to like for long-term investors, and that's why I think this is a top dividend stock today.
