Summary
- Verizon’s 7.5% dividend might look attractive but the stock is likely to be a value trap.
- The competitive pressure on Verizon is likely to increase as the company lags behind T-Mobile in 5G coverage.
- We have already seen some new plans, which are priced lower, but Verizon might not be able to retain customers without adequate bundle options.
- The company is undertaking another massive layoff in its customer service department, showing the overall pressure to generate income.
- Even with massive dividends, Verizon’s total return has been significantly behind the broader S&P 500 index over the last ten years which reduces the attractiveness of a 7.5% yield.
Verizon’s (NYSE:VZ) stock has dropped by 10% since Q1 earnings report while S&P 500 has gained 2%. This difference in performance is despite the fact that Verizon has a good rating by Wall Street analysts. It should be noted that this correction is happening while the company continues to give a very generous dividend. After the recent price correction, VZ stock has a dividend yield of a staggering 7.5%. 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.
Despite massive capital expenses in the last few quarters, Verizon is still lagging in the 5G coverage. Recent changes in mobile plans have also seen negative reviews because they take away many important bundle options which increased customer loyalty. The company is also undertaking massive layoffs which shows the pressure on management to conserve cash.
READ FULL ARTICLE HERE!