Income Expert Calls on Verizon

12/08/2014 8:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Our Lifelong Income Portfolio has lacked exposure to the telecom sector, a traditional haven for investors seeking above-average yields, observes Roger Conrad, editor of Conrad's Utility Investor.

To address this absence, we’ve added Verizon Communications (VZ) to the portfolio. As the undisputed industry leader, Verizon often faces criticism and second-guessing from critics looking for the goliath to eventually stumble.

Wall Street analysts constantly obsess over the extent to which increasing price competition from second-rate carriers will erode profit margins.

The company’s dominance also means that the media second guesses its every strategic move. Despite all the chatter from the peanut gallery, Verizon consistently has delivered quarterly results that reinforce its virtually unassailable position as the top dog in the US telecom sector.

In the third quarter, the firm grew its earnings per share by 15.6% from year-ago levels on a 4.3% increase in revenue that included gains in wireless (4.6%) and consumer wireline (4.5%).

Despite the perceived threat of lower prices from carriers with inferior networks, Verizon added 1.53 million retail wireless connections and posted the industry’s lowest attrition rate for post-paid customers.

On the wireline side, Verizon Communications’ FiOS Internet service has captured 40.6% of the markets in which it’s available, up from 39.2% in the third quarter of last year.

Meanwhile, adoption of FiOS Quantum—the firm’s fastest broadband offering—increased to 57% of customers.

Enterprise and wholesale sales remain the company’s lone weak point, with declining revenue from long-distance phone and other legacy services outpacing growth in cloud-related services. On the plus side, cost reductions have kept profit margins steady in this segment.

The US telecom giant also accelerated its annual dividend growth rate to $0.02 per share from the $0.015 that had become the custom. With a dividend yield of 4.4%, Verizon rates a buy up to $52 per share.

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