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Verizon Communications Plans Cost Cuts to Fund Dividends

Zacks

U.S.telecom behemoth, Verizon Communications Inc. VZ is planning to cut costs by up to $10 billion over the next four years. In fact, the company wants to fund its dividend with this savings as stated by the company’s chief executive Lowell McAdam at a Goldman Sachs conference.

On Sep 7, Verizon announced a quarterly dividend of 59 cents per share that witnessed an increase of 1.25 cents per share, or 2.2 %, from the last quarter. Notably, this is the 11th successive year that the board has approved a raise.

However, funding of dividends is difficult with rising debts. At the end of the second quarter of 2017, Verizon had $117.54 billion in long-term debts compared with $108.08 billion in the year-earlier period. The debt-to-capitalization ratio was 0.81 at the end of the quarter, in line with the 2016-end figure. Verizon has a dividend yield of 4.9%, whereas its top peer AT&T Inc. (T) has a dividend yield of 5.4%.

Consequently, the company plans to slash $10 billion of its costs and support the dividend payout with the savings by 2022.


In the first half of 2017, Verizon has made $4.7 billion in cash dividend payments and has 4.1 billion shares of common stock outstanding approximately.

However, this telecom behemoth is continuously investing in its wireless and wireline fiber-optic networks. Additionally, it is conducting field trials for its upcoming 5G wireless network with partners.

In fact, Verizon is considering mobile hotspot and home-based fixed wireless for initial deployment of the next-generation 5G wireless networks in the United States in 2018.

Also, the company has integrated Versa Networks to its software defined networking solutions. Its primary motive is the expansion of managed services to a broader segment of small and medium businesses in response to rising demand for virtualized services.

Furthermore, Verizon’s acquisition of the core businesses of the Internet-company, Yahoo! Inc., perfectly complements Verizon’s focus areas of digital platform. Hence, the closure of this deal paves the way for a new beginning.

Markedly, Oath is a part of Verizon’s Media and Telematics organization and is overseeing a diverse house of more than 50 media and technology brands under Yahoo and AOL, thus engaging more than a billion people globally. AOL Inc. is a major player in the digital content and online advertising space, acquired by Verizon in June 2015.

Price Performance

Share price of Verizon increased 1.2%, as against the industry’s decline of 3.2% in the last three months. The company currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the broader Computer and Technology sector may consider better-ranked stock like Arista Networks, Inc. ANET, America Movil SAB AMX and Motorola Solutions, Inc. MSI.

Arista Networks currently sports a Zacks Rank #1 (Strong Buy) and projects earnings per share (EPS) growth rate of 19.3% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

America Movil and Motorola Solutions currently holds a Zacks Rank #2 (Buy). Both the companies expect EPS growth rate of 55.9% and 5.2%, respectively, during the same time frame.

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