VZ Stock: Is Verizon a Good Buy Right Now?

When you invest in individual stocks you need to keep your risk appetite in mind. For an individual nearing retirement, investing in companies that have an established presence with a low beta makes perfect sense. Alternatively, investors with a long-term investment horizon can have exposure to small-cap stocks that are more volatile. 

If you are someone who wants to derive stable returns, you can look at investing in recession-proof sectors such as telecom. Companies part of the telecom sector provide an essential service allowing them to perform well across business cycles. One such stock that you can add to your portfolio is blue-chip telecom giant Verizon (NYSE: VZ). 

An overview of Verizon

Verizon offers communications, technology, information and entertainment products and services to consumers, businesses and government entities all around the world. 

Its Consumer segment provides postpaid and prepaid service plans, internet access and wireless equipment. Verizon also provides residential fixed connectivity solutions and sells network access to mobile virtual network operators. At the end of 2020, the company had 94 million wireless retail connections, seven million broadband connections and 4 million Fios video connections. 

Its Business segment provides network connectivity products that include private cloud connectivity, virtual and software defined networking, unified communications as well as internet access services. This segment also offers a suite of management and data security services in addition to global voice and data solutions. 

Recent quarterly results

Verizon is one of the largest telecom companies in the world and in Q1 it managed to increase sales by 4% year over year to $32.9 billion. Its adjusted net income stood at $1.31 per share compared to $1.26 in the prior-year period. Wall Street forecast the company to post revenue of $32.47 billion and earnings of $1.29 per share in the March quarter. 

Verizon grew sales in each of its three operating segments. While sales in the Consumer business was up 5% at $22.8 billion, the Business segment sales inched higher by 1% to $7.8 billion and the Media business grew top-line by a healthy 10% to almost $2 billion. 

Verizon expects adjusted per share between $5 and $5.15 in 2021. Driven by the rollout of its 5G network, the telecom heavyweight will spend between $19.5 billion and $21.5 billion in capital expenditures this year.  

A Warren Buffett bet

Verizon is also part of Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B)  portfolio. Warren Buffett likes dividends and Verizon stock has a tasty forward yield of 4.26% making it really attractive to income investors who want to beat inflation and generate a steady stream of income. 

For example, a $5,000 investment in Verizon stock will allow you to derive over $210 in annual dividends. Further, in the last five years the stock is up over 40%. 

The company has a conservative payout ratio of less than 60% allowing Verizon to reinvest in CAPEX and increase dividends over time. Despite a tough 2020, the company generated over $18 billion in cash flow. It now expects to increase earnings between 2% and 5% in 2021. Verizon has increased dividends each year since 2007 making it one of the top dividend growth companies on the S&P 500.  

The verdict

Verizon ended Q1 with $137 billion in debt but it continues to improve its leverage ratio. As the transition towards 5G gains pace, Verizon is well-poised to become the top telecom company in the U.S. and might displace AT&T (NYSE: T) from the pole position. 

Verizon stock is valued at a market cap of $242 billion which means its price to sales multiple is less than 1.7x. Analysts covering the stock have an average 12-month price target of $60.1 which is 4% above its current trading price. After accounting for its dividend yield total returns will be closer to 8%. 

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