But hold on just a minute. On the negative side, Verizon's trailing price-to-earnings ratio looks positively expensive at 113, light years higher than the industry average of 18.2. And Verizon's payout ratio (the percentage of a company's net income that is used to pay its dividend) is listed at a whopping 728%. This suggests that Verizon will need to free up cash from its wireless business unit to maintain such an attractive dividend. But Verizon won't be able to grab all of the $12 billion because Vodafone
So color the situation for Verizon a bit murky. Will the positives lift Verizon's share price, or will the negatives create a drag on share prices and even put its healthy dividend at risk?
And the nominees are
Our 165,000-plus-member CAPS community views America Movil
America Movil's forward P/E is 12.1 and trailing P/E is 14.3 (both better than Verizon), but provides a paltry 0.5% dividend yield. So, America Movil won't be attractive to the dividend investor, but it could be a better opportunity for capital appreciation. America Movil's free cash flow margin (defined as FCF / trailing-12-month revenue), is among the highest of its peer group, with 23% of its revenue turning into free cash flow (vs. 14% for Verizon). With plenty of growth potential in the emerging Latin American market, America Movil could have lots of upside. The company has been aggressively positioning itself to dominate the future 4G wireless network market in Mexico. And earlier this year, America Movil announced plans to acquire landline and broadband companies Telefonos de Mexico
Another alternative for Verizon investors is Vodafone. As mentioned above, Vodafone owns 45% of Verizon's wireless business and stands to benefit handsomely when Verizon's wireless unit starts to put all that free cash flow back into the business. The stock offers a 5.6% dividend yield with a payout ratio of 48%. And Vodafone's current and forward P/E is about 9. Given that its valuation looks a bit more attractive than either Verizon or America Movil, Vodafone might provide the best combination of attractive dividend and attractive capital appreciation opportunity.
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