
Verizon Is Impressive, Cheap and Has Solid Dividend
With its shares losing 1.2% in 2015 (compared to the 0.73% decline in the S&P 500 (SPX) index), Verizon Communications (VZ) - Get Reportdidn't produce the gains investors expected. But if you're looking for a cheap stock with strong earnings growth potential that also pays an impressive dividend, the nation's largest wireless communications provider belongs in your portflolio.
Verizon reports fourth-quarter earnings before the opening bell Thursday.
For the quarter, analysts expect Verizon to earn 88 cents a share on revenue of $34.13 billion, translating to increases of 24% and 2.8%, respectively. For the full year, earnings are projected to climb 19% to $3.98 a share, while revenue of $131.51 billion would mark an increase of 3.5% from the year-ago quarter. The full-year EPS estimate suggests earnings growth of around 19% from the previous year, which would be almost four times the projected earnings growth rate of the S&P 500 index.
In this case, based on both the quarterly and full-year projections, Verizon is expected to grow profits at more than five times the rate of revenue, underscoring management's focus not only on operational efficiency but the strength of the company's subscribers amid stiff competition from smaller telecom players Sprint (S) - Get Report and T-Mobile (TMUS) - Get Report .
Plus, with Verizon's profits still climbing thanks to three straight earnings beats, the company is able to return some of its cash flow back to shareholder via buybacks and dividends. Verizon's strong 56.5-cent quarterly dividend yields 4.8% annually, almost three times the average yield paid out by the S&P 500 index's dividend payers.
TheStreet's Jim Cramer recently called out Verizon, saying that in a volatile stock market, companies like Verizon will continue to see solid cash flows, despite China, and are more likely to raise than cut their dividend. He's not bullish but sees the stock as a bargain if it goes lower.
What do you get for all of Verizon's value? With shares trading at around $44, the stock is still cheap, priced at a price to earnings multiple of 18 that is three points lower than the S&P 500. What's more, based on the analyst 2016 consensus estimate of $3.98 a share, the stock is priced at just 11.5 times those projections, or 5.5 points below the S&P 500 index. This means if Verizon -- a component of the Dow Jones Industrial Average (DJI) -- was priced on par with the rest of the market, the shares would be valued today at around $67.
In short, with the company still growing its subscriber base -- adding 1.3 million net retail postpaid connections in the third quarter -- combined with a decline in its churn rate, which fell seven basis points in the third quarter to 0.93%, Verizon is operating on all cylinders and belongs in your portfolio for 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.









