![]() The net debt to EBITDA is also quite high and it is unlikely that the management will be able to meaningfully bring this ratio down due to higher need for capex, massive dividends, and poor FCF growth. Verizon’s market cap is lower than the long-term debt carried by the company. T-Mobile has clearly shown the benefit of not giving dividends to this industry.įigure 3: Comparison of market cap, long-term debt, and total dividends paid. If T-Mobile were to give a modest 5% dividend yield, it would cost the company $8 billion annually. Verizon has to spend close to $11 billion on dividends while T-Mobile saves on this massive expense. T-Mobile has been closing the gap with Verizon in terms of capex. Despite management’s assurances that the capex will be curbed in the next few quarters, we could see higher-than-average capex as the company tries to regain leadership in terms of network strength.įigure 2: Comparison of capex between the big three telecom players. This has caused a steep decline in free cash flow in the last few years. The only solution for Verizon is to continue spending at a higher pace in order to improve its 5G network. However, T- Mobile ( TMUS) has built a good lead in the 5G era and is giving better performance compared to Verizon in several metrics. The company was able to charge a premium prior to the launch of 5G network due to a perception that it provided better coverage. Verizon is facing numerous challenges and there is no easy solution to these problems. However, we could continue to see further correction unless the company is able to show that it will be able to defend its revenue base and market share. The company has announced massive layoffs which should help in short-term cost optimization. ![]() The double-digit stock correction in the last few weeks is a clear signal that the stock has not found its bottom and Wall Street is very concerned about the ability of the company to pay a 7.5% dividend yield. If the company continues to miss the revenue estimates, it will end up hurting the long-term security of its dividend.įigure 1: Correction in Verizon stock since Q1 earnings. Verizon's massive debt pile and dividends rely on a stable FCF. This would shrink the revenue base and hurt the cash flow of the company. Wall Street is concerned that higher competitive pressure on Verizon can end up forcing the company to give greater discounts. One of the key reasons for this bearish sentiment is the revenue miss shown by the company. Verizon stock has been on a continuous downward trajectory since the Q1 earnings report. Investors looking for a stable dividend play should consider other options despite the attractive yield boasted by Verizon stock. ![]() ![]() This will put pressure on the ability of the company to reduce the massive debt pile and also increases the chances that we might see a dividend cut. It is unlikely that the company will be able to limit capex over the medium to long term if it wants to reduce the churn rate and show good subscriber additions. The company is also undertaking massive layoffs which shows the pressure on management to conserve cash. Recent changes in mobile plans have also seen negative reviews because they take away many important bundle options which increased customer loyalty. This looks attractive but a close look at the future cash flow potential and challenges facing the company shows that this dividend is not secure.ĭespite massive capital expenses in the last few quarters, Verizon is still lagging in the 5G coverage. After the recent price correction, VZ stock has a dividend yield of a staggering 7.5%. It should be noted that this correction is happening while the company continues to give a very generous dividend. ![]() This difference in performance is despite the fact that Verizon has a good rating by Wall Street analysts. Verizon’s ( NYSE: VZ) stock has dropped by 10% since Q1 earnings report while S&P 500 has gained 2%. ![]()
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