In the midst of all the telecom wars, app competition, and endless advertising about who can hear who now, telecom stocks can still offer a nice blend of growth and income for investors who prefer steady cash flow.
One such option is Verizon Communications (VZ). Recently trading at $38 per share, the stock has a dividend yield of over 5 percent. In fact, over the past ten years, a share of Verizon has paid out over $17 in dividends to its investors.
The company has a large subscriber base, a variety of product and service offerings, and a forward movement momentum all going for it. In addition, with some potential new avenues in the works, Verizon could be poised for some definite upward movement.
In this article, I will discuss why Verizon is one of my favorite telecom companies as well as the reasons that I think this stock can offer investors a great opportunity for both income and growth.
Will Verizon's Future Be As Strong As Its Past?
Verizon Communications is a holding company that has subsidiaries providing communications services - including wireless and wired telephone, internet connections, and digital TV. The company also offers network services to customers across the globe.
Over just the past year alone, shareholders of Verizon have enjoyed in excess of a 13 percent rise in share price. In comparison to many large cap stocks, this is almost unheard of - especially in light of the up and down market conditions.
Although the company posted a fourth quarter loss in January, this was primarily due to pension costs and other miscellaneous charges. Verizon's adjusted results did fall short of Wall Street estimates though.
As of the quarter ended December 2011, however, the shares of Verizon were trading at a 2.8 P/E ratio and a price-to-earnings multiple of over 15. All in all, owners of this telecom stock still enjoyed nearly a 12 percent average annual return on their equity. Not bad in a roller coaster market.
Look Out for the Other Big Boys
With all of the good news about Verizon shares, some of its closest competitors should likely not be overlooked. Take AT&T (T) for example. Although its growth prospects are not stellar - the stock is currently trading at just over $31 per share with a one year estimated target price of the same - the company's dividend yield is just under 6 percent. This is, in fact, just below its highest dividend yield in history that made the news in June 2010.
Given the shares' impressive dividend yield, some analysts are recommending the stock shares over the company's bonds, which are returning just about half of the dividend yield's return. One thing to certainly keep in mind here, though, is that although bond yields are fixed, stock dividend yields are not. So, this should definitely be taken into consideration when analyzing the long term prospects of such a return.
Overall, however, I'd be cautious about picking up shares of AT&T at its current price if you are seeking anything other than a nice dividend yield. This is because the share price is not expected to rise a whole lot more - at least over the next 12 months.
Another of the telecom biggies is Ericsson Telephone Company (ERIC), which - with over 900 million worldwide subscribers - is actually deemed as the leading provider of technology and services to telecom operators, as well as being the leader in 2, 3, and 4G mobile technology.
Even though the stock price was at a one-year low within the past 12 months, the fundamentals that surround it still make Ericsson a strong buy, especially in light of the growing demand for broadband capacity.
Although I agree that Ericsson could be a good buy for dividend investors, I'd be somewhat cautious about picking up the shares unless they were under $10. Otherwise, even with a strong dividend yield, the growth prospect could be disappointing.
What Does Verizon's Future Hold?
For the year 2011, revenues at Verizon totaled just under $111 billion, with company earnings at a little over $2 per share. This came in at roughly 4 percent above the company's results for 2010, and it seemed to give Verizon a potential boost for the future.
Presently, analysts are optimistic regarding Verizon's future growth and many feel that the company's earnings will grow on an annual basis at around 6 percent. That, coupled with a high dividend yield in excess of 5 percent, could just make this one a true winner.
One other event that could drive even more positive movement in Verizon's stock relates to the recent media talk of Apple selling their iPhone through Verizon's network. Up until now, Apple has always sold the iPhone product itself in the United States - a product that has accounted for over 50 percent of the value of Apple's stock.
The Bottom Line
While there are some analysts that continue to rate Verizon as a Hold, others rate it as being a strong buy - and I tend to agree with this group. With a current stock price in the $38 range and a one-year estimate of $43, the stock price has some room to move - and a deal to sell Apple's iPhone could be just the catalyst that could get it there. If this happens, even a $40 price tag per share could be a bargain.
With upward moving share price, a constantly strong dividend yield, and good news on the horizon, it could all mean that Verizon is a definite telecom stock to consider for an income producing portfolio.
All in all, I would certainly give Verizon a big thumbs up in terms of being a buyer. Given the company's consistent growth and nice solid dividend yield - likely for the long term - this one would certainly be a keeper in terms of both income and capital appreciation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.