Verizon (NYSE:VZ) has a promising outlook for the long term. Its 4G LTE network is the largest in the nation and growing rapidly. It also has a more diversified portfolio of smartphones than its top competitor. Verizon is also offering a new plan that will help increase its profitability and close the back door on its losses. In this article, I will explain why shareholders should hold this stock beyond 2013 to benefit from the substantial dividend yield and potential capital appreciation.
Verizon's sales have decreased by less than one percent from the previous quarter, while it has increased by more than 4.5 percent from the previous year. Verizon's beta is close to 0.5 while its PEG ratio is close to 2.5. Its current price of 18 times earnings is an improvement from the trailing 12 months price of more than 20 times earnings. Its return on equity, operating margin and net margin have been relatively stable, increasing by less than one percent from the end of 2011 through the end of Q1 2012. Verizon's current ratio is slightly above one, while its quick ratio is slightly below one. Its debt-to-equity ratio has improved marginally since 2011; it's currently above 0.5. Verizon's current dividend yield is around 4.45 percent. This equates to a rate of $2 annually.
Behind AT&T (NYSE:T), Verizon currently has one of the highest dividend yields in the industry. Verizon's trailing 12 months price-to-earnings ratio is slightly above the industry average. Its price-to-book ratio is almost equivalent to the industry average. Verizon's trailing 12 months net profit margin is significantly higher than the industry average while its return on equity for the same time period is slightly below the industry average. Verizon's growth rate of this year is almost five times the industry average. Its projected growth rate for next year is around 40 percent higher than the industry average, while the projected growth rate for the next five years is slightly lower than the industry average. At the minimum, Verizon is a reliable defensive asset shareholders can have confidence in holding for the long term in their portfolios.
Verizon recently launched its new "Share Everything Plan." The primary purpose of this plan is to serve as a retention mechanism while increasing the ROIC and ARPU from developing 4G LTE networks around the country. Verizon has 4G LTE networks in about 300 regions across the U.S. Verizon currently has the largest 4g networking the country. All of the new smartphones will operate under 4G from here on for Verizon. With 4G networks download speeds are around 10 times faster than 3G. Verizon's 4G LTE network covers two-thirds of the U.S population. Customers will switch between either the 4G or 3G network when they leave or enter certain areas. Verizon's 4G LTE network is meant to service residents, businesses and visitors as well.
The "Share Everything Plan" will help protect Verizon from losing revenue on the currently declining use of voice and text messages. Many people are able to use third-party apps on smartphones like Skype by Microsoft (NASDAQ:MSFT) to circumvent voice and text message charges from Verizon and AT&T. This new plan will charge a fixed rate for unlimited minutes and text, while delivering incremental charges on the amount of data used.
This is an effective plan for Verizon; one that AT&T is certain to adopt in a few months, but it does make subscriptions more expensive for the end-user. Verizon believes it will also help to decrease churn as users will be less apt to switch from the carrier once they have multiple users and multiple devices connected under one account. This new plan exemplifies the growing prevalence of data as a commodity in this growing information age. Verizon could easily become the first real "data utility" with moves like this. It's unlikely that competitors like Sprint (NYSE:S) and T-Mobile (OTCQX:DTEGY) will adopt this model; they are less equipped and less able to withstand the possibility of losing market share over the more expensive subscription plans.
Verizon seems to currently have an edge over AT&T in a few different ways. It has reached an agreement with Deutsche Telekom's U.S. division for a spectrum swap that covers over 20 million people for the price of over $250 billion. AT&T and Verizon will only be as viable as the amount of spectrum they are able to acquire; this is currently a real-time problem for AT&T.
Verizon has had a high growth rate for some time while being able to increase its ARPU and subscriber base while lowering its churn rate and expanding its portfolio by partnering with Apple (NASDAQ:AAPL) for iOs and Google (NASDAQ:GOOG) for its Android OS in multiple phones. This is another advantage for Verizon; it has the iPhone but depends on its success less than AT&T. Verizon is experiencing growth in its iPhone subscriptions, while AT&T remains the leading carrier for the iPhone. Fortunately for Verizon, the number of subscriptions in its RAZR line is quickly catching up to iPhone subscriptions due to recent innovations in the newer model and the prominence of Android OS growth since the original RAZR conception years ago. Verizon will also be one of the carriers to have the new Galaxy III and recently announced it will be the exclusive carrier of the DROID INCREDIBLE 4G LTE by HTC the as well.
Verizon's growth in revenue is expected to exceed AT&T and Sprint for 2012 and 2013 as well. It has a lower price-to-book ratio and price-to-sales ratio than AT&T while growing at a faster rate. The growth of its 4G LTE network will serve Verizon well in the future. It has enough goodwill and cash reserves to withstand the investment in its growing network while it transitions into the "Share Everything Plan."
Eventually this plan should help increase the revenue per end-user. The holiday season and release of Apple's new iPhone will also help to spur earnings growth toward the end of 2012. The forecast for Verizon is looking very promising in 2013; interested investors should buy Verizon now before its price increasing with the release of the newest smartphones on the market. If the "Share Everything Plan" shows efficacy in the next earnings report, an increase in its stock price is expected as well. Shareholders should hold this stock for the long term to benefit from the substantial dividend yield and potential for capital appreciation in 2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.