- Dividends and clock-like dividend increases remain the long-term attractions.
- Analyst estimates and price targets add luster to short term.
- Support from big boys as well as technical standpoint do not hurt.
We recently wrote about AT&T (NYSE:T) and 5 reasons to consider Ma Bell at this time. When talking about AT&T, can Verizon Communications (NYSE:VZ) be far behind? Like AT&T, Verizon has also been in the thick of action lately including the tiff with Netflix (NASDAQ:NFLX).
This article evaluates Verizon with almost the same metrics used in the AT&T article with some minor variations. Let us get into the details.
Upcoming Dividend Increase: Next month, Verizon will go ex-dividend for its quarterly dividend of 53 cents/share. That will mark the 4th consecutive quarter that the company has paid the same dividend. That means only one thing for dividend growth investors. A dividend increase is on its way and going by recent trends, investors can expect the new quarterly dividend to be between 54 and 55 cents/share. That should give a yield on cost of 4.40% for investors buying today.
Analyst Estimates: As can be seen in the table below, Verizon's EPS estimates have been trending up as well like AT&T's.
- These days, it is hard to find companies where estimates are going up. Usually, analysts have an overly optimistic estimation and the numbers are watered down as the results approach. When the opposite happens, you know the stock is undervalued.
- If 2015 estimates of $3.85/share hold true, Verizon is trading at a forward multiple of 12.72 based on current share price of about $49.
- 25 analysts on Yahoo Finance have a mean price target of $54, which represents nearly 10% from here.
(Source: Yahoo Finance)
Cash Proof: Okay, that is an exaggeration as no stock is impervious to market euphoria. But with more people calling for a market top, some investors might feel the need to bring in a bit more safety to their portfolio. Verizon has got three important factors that cushion investors during a market meltdown:
- Staple: Yes, you read that right. Even in case of a meltdown, it is hard to imagine this generation doing away with cell phones and wireless. Verizon, like AT&T, is basically a staple stock in the name of technology/telecom.
- Beta: A low beta of 0.04.
- Fat yield: Try getting a relatively safe 4.20% yield anywhere else with some potential for capital growth too.
Support: No, we aren't talking technical support here. Rather, support from the big hedge funds as covered in this article. If Warren Buffett's recent disclosure about increasing stakes in Verizon is not enough, venerable funds like the Vanguard Group increasing their stakes should be a positive for long-term investors.
Technical Indicator: This time we are going technical. Verizon's RSI is in the 50s as of this writing and this usually means the stock is in the middle of an upswing. Verizon might not be as good bargain here as AT&T but the stock isn't overbought either. In addition, the price chart shows very good support at $47 and then at $46 levels. That means the downside (assuming no market meltdown) is minimal.
(Source: Yahoo Finance)
Conclusion: So, what do you think about Verizon here ? Are you considering the stock as a potential safe pick when the market eventually pulls back? Please leave your comments below.