Verizon is aggressively pushing its “network-as-a-service” offerings.
The company’s dividend has recently been increased.
The telecommunications company is currently trading at a significant disadvantage to its 5G rivals.
Verizon ( NYSE: VZ ) is the type of investment that Warren Buffett, the famed value investor, is drawn to. Berkshire Hathaway ( NYSE: BRK.A ) and Berkshire Hathaway ( NYSE: BRK.B ) are substantial holdings. Some other marketers may believe the company is cheap for whatever reason, given its long history of moderate profits and rising stock prices.
However, the spread of the 5G network and the fresh development potential it brings may boost Verizon’s offering’s value. Investors may look back on today’s 5G stock price as a deal they’d like to take advantage of in the not-too-distant future.
Verizon’s Growing Competitive Advantage
In the United States, Verizon, AT&T ( NYSE: T ), and T-Mobile ( NASDAQ: TMUS ) have formed a 5G oligopoly. Additional competitors are unlikely to arise in the telecommunications sector, given the tens of billions of dollars these businesses invest annually in capital expenditures to support their positions. Nonetheless, in recent years, T-increasing Mobile’s competitive threat has diminished Verizon’s profits, making it less appealing to investors.
Despite this, Verizon is pioneering a new line of business that has hitherto been inaccessible in the 4G world: network-as-a-service (NaaS). NaaS is a digital subscription service that links data and applications to both private clouds and data centers, according to the business. Verizon will eventually connect anything from remote sensors to drones to digital platforms, rather than just smartphones, PCs, and communication networks. Verizon said in its Q1 2021 earnings report that it had already secured 5G-based collaborations with Honda to connect driverless vehicles, as well as SAP and Deloitte to connect retail peripheral computing systems.
AT&T and T-Mobile, for example, have both entered the market. In its Q2 2021 earnings release, however, Verizon was the only corporation to mention NaaS plan. Furthermore, Verizon spent $53 billion on the FCC’s recent C-band spectrum auction. That considerably outstripped AT&T’s $23 billion investment and T-$9 Mobile’s billion investment.
Verizon may already see a financial benefit
Unlike in previous years, Verizon has begun to acquire financial traction. Its revenue increased 7% year over year to approximately $67 billion in the first half of 2021. This resulted in a net profit of little over $11 billion, up 24% from the previous year. Verizon has set a cost growth cap of 5%.
Furthermore, this Buffett stock is perfect for dividend investors due to its resilience and payment growth. Verizon’s board of directors upped the dividend to $2.56 per share for the year in the most recent quarter, marking the company’s 15th straight yearly rise. As a result, at the present share price, the distribution provides a 4.7 percent yield to new investors.
Furthermore, the company was able to easily fund the $5.2 billion dividend payout for the first half of the year with free cash flow of $11.7 billion. In general, Verizon’s payout is quite consistent.
This value proposition, however, may not appeal to growth investors. The stock is trading at approximately the same level as it was a year ago, and it has down 8% since the start of the year. Furthermore, the aforementioned P/E ratio of 11 is only somewhat lower than the 14 it had at the start of the year, but it is still significantly below T-P/E Mobile’s ratio of 41.
Which investors should Verizon consider?
While Verizon is still the clear winner for income investors, growth investors should consider purchasing this stock as well. T-competition Mobile’s has long put pressure on the entire sector, and the stock’s recent underperformance may deter some potential purchasers.
However, the company’s P/E ratio of 11 does not appear to take into account NaaS’s new and possibly successful operation. Furthermore, this low ratio, combined with the company’s substantial and growing dividends, may explain why Buffett and other investors are waiting for the telecoms stock price to catch up to Verizon’s value argument.