It’s a tough environment. Inflation is rising so cash makes little sense. But after a tumultuous start to the year, the risk of investing is high.
Growth stocks fell out of favor when the first signs of inflation appeared and the Federal Reserve hiked rates. Investors flocked to safer havens, and dividend stocks became an obvious group to screen but which one is best?
A top dividend stock can provide a safe haven during a volatile period, and income until the volatility subsides. Whether you’re currently rebalancing your portfolio or want to add a dividend stock you can count on, Verizon Communications (NASDAQ: VZ) is worth examining. Here’s why.
Verizon Makes Up 3.41% Of Buffett’s Portfolio
Verizon has attracted plenty of respected investors, including the Oracle of Omaha himself. He holds nearly 160,000 shares of VZ, representing 3.41% of his portfolio.
Verizon has been stuck in “neutral” for years, but that may soon change thanks to 5G. The adoption of 5G has the potential to ignite Verizon stock again. Already the company’s wireless business is highly profitable and offers plenty of growth opportunities. Yet the company trades more like a value stock.
So what could ignite its share price?
Verizon Has Growth Options
Investors looking for explosive growth may not have had Verizon on their radars over the past couple of years but the tide may be turning.
Verizon’s revenues have been steady for years, and operating cash flow has been improving. Sure, while looking at the company’s history and recent financial charts, trends don’t initially scream “growth,” but the company’s future looks bright.
Verizon plans to focus on home and business wireless internet, offering 4G and 5G fixed wireless to millions of households. By 2025, management expects 50 million households to be within reach of 5G. Since this is a new market for Verizon, the revenue potential is significant. By successfully bundling smartphone connections with fixed wireless connections, Verizon has the potential to earn additional billions in revenues annually.
But that’s just the beginning.
If Verizon builds a successful 5G network, it will provide many revenue opportunities that span sectors ranging from autonomous vehicles to edge computing in virtual and augmented reality.
Verizon has a history of reliable dividend payouts. For 15 years, the company has increased payments to shareholders. From 2018 to 2022, there’s been nearly 11% growth.
On February 28, 2022, Verizon declared a quarterly dividend of 64 cents per outstanding share, representing a dividend payout of around 5.3% at last count.
The Chairman and CEO Hans Vestberg said, “We are pleased that our consistent operations performance has once again put our Board in a position to return a dividend to our shareholders.”
In 2021, the company made $10.4 billion in cash dividend payments.
Is Now the Time to Buy Into Verizon?
Running a discounted cash flow analysis on Verizon reveals a compelling Buy opportunity for such a stable company with millions of paying customers. The intrinsic value sits at $61.76, suggesting upside potential of 28.5% at the time of writing.
Trading at just 9.9x earnings, Verizon is about as cheap as it has been over the past 5 years on a fundamental basis. This is true looking at its price/book value which is just 2.8x versus 8.0x in 2017.
To recap, here are just a few reasons to consider adding shares of VZ to your portfolio:
- VZ shares provide stability in the face of uncertainty surrounding inflation.
- Verizon is already enjoying the benefits of 5G. This network offers significant opportunities for growth moving forward.
- The company showcases strong performance, especially concerning free cash flow-generating consistency.
- Intrinsic value suggests significant upside
- Multiples are trading near multi-year lows.
The bottom line? If you have been eyeing this telecom giant, now is an ideal time to grab a few shares.