Bullish Verizon Promises Dividend Growth

Verizon's free cash flow is driving dividend expansion, according to the firm's financial guru.
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Despite an increasingly tough economy which has wrought havoc in the stock markets, telecom giant

Verizon

(VZ) - Get Report

has promised to keep growing the dividend it pays to shareholders.

Verizon's financial guru Doreen Toben reiterated the company's dividend strategy during a presentation at the Raymond James Institutional Investors' conference Monday in Orlando, Fla.

"Our goal remains to return value to shareowners through an annual dividend increase model," she said, explaining that Verizon has grown its dividend by more than 13.5% in the last two years.

The former Verizon CFO is serving as the firm's executive vice president prior to her

retirement

in mid-2009, and also helping John Killian, the firm's new finance chief, transition into her previous role.

Toben said the company's "incredible" free cash flow will continue to underpin its dividend payments. In 2007 and 2008, for example, the firm had operating cash flow of $25.7 billion and $26.6 billion, respectively, but kept its capital expenditure at $17.5 billion and $17.2 billion.

"When you look at the cash flows, they absolutely support well beyond five years being able to do that," added Toben.

Verizon, which is

helping drive

the smartphone explosion, is seen as

an attractive stock

, thanks largely to its dividend and long-term growth potential.

The firm's recent

fourth-quarter profit

, for example, grew 15%, driven by its

wireless and broadband businesses

.

Toben nonetheless acknowledged the challenges posed by the global economic slowdown.

"While our long-term prospects remain solid, like others in the space we have started to see some revenue softness that we believe is cyclical and related to the economy," she said. "As we move through the year, you can expect us to continue to be disciplined and balance new sales and profitability."

Verizon's shares fell $1.10, or 4.03%, to close at $26.18 Monday, outpacing a broader retreat in tech stocks that saw the Nasdaq slip 1.95%. The company's shares have fallen 24% in the last 12 months.

Toben sought to reassure investors that the telecom market is alive and well.

"We believe the industry is fundamentally healthy and strong, with great opportunities for future growth," she said, highlighting in particular Verizon's wireless business. "The good news is that we are in the very early stages of wireless broadband, with relatively modest adoption rates so far, so we see plenty of upside potential."

Toben said Verizon is already testing

4G

Long Term Evolution (LTE) networks, which will be rolled out on a commercial basis in 2010, targeting 30 metropolitan markets.

The telecom giant, which competes with

AT&T

(T) - Get Report

and

Sprint Nextel

(S) - Get Report

, also wants to grow its FiOS wireline business, according to Toben.

"With 12.7 million homes passed at the end of last year, we are gaining both scale and momentum," she said. "We are very much on track to pass 18 million homes by the end of 2010."

Verizon's partner

Qwest

(Q)

also delivered an upbeat message at the Orlando conference Monday, reaffirming its own commitment to delivering a dividend to shareholders.

Joe Euteneuer, Qwest's CFO, is also eyeing opportunities within President Obama's stimulus package.

"We're spending a lot of time looking at that, working out where we can take advantage of the stimulus bill and where the strings are attached," he said. "I would like to think that we can get a piece of that that helps our business as we move forward."