Verizon's Turnaround Is Gaining Momentum. Is This 6.5%-Yielding Dividend Stock a Buy?

Verizon (NYSE:VZ) is starting to look like more than just a high-yield dividend stock. The telecommunications giant added 406,000 postpaid phone customers in the third quarter, an eye-popping 820% year-over-year increase. That accelerating momentum helped drive stronger earnings and cash flow, prompting Verizon to raise its full-year outlook for the third straight quarter.

With the stock trading at less than nine times this year's expected earnings and yielding 6.5%, is Verizon stock a buy right now? Here's a look at the company's most recent quarter and its total return potential from here.

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The turnaround is gaining momentum

Verizon's third-quarter earnings rose 8.3% to $1.31 per share. That's a continuation of its strong momentum this year. It topped the 7.6% growth rate achieved in the first quarter, its best quarterly growth rate since 2021. The company delivered its strongest third-quarter postpaid phone net adds in five years and its best quarterly net account growth in over a decade. Meanwhile, its churn rate was lower year over year.

The telecom giant's ability to win high-value customers while retaining more of its existing customer base is driving expanding margins and strong cash flow. Its cash flow from operations was $11.5 billion in the quarter (up 2.2% year over year), while its free cash flow was $7.8 billion (up 12.1% year over year). Verizon has generated $18 billion in free cash flow through the first nine months of this year (a 14.3% increase), following $11.9 billion in capital expenditures. That has more than covered its dividend ($8.8 billion paid through the first nine months of this year), leaving excess cash to repurchase stock ($4 billion year-to-date) and strengthen its balance sheet.

More earnings and cash flow growth ahead

Verizon's continued improvement led the telecom giant to boost its full-year guidance for the third straight quarter. It now expects adjusted earnings-per-share growth of 7%-7.5% in 2026 (up from 6%-7%) and free cash flow growth approaching 12% (up from 9%-10% growth).

The improvement in its core wireless and broadband businesses isn't the only driver of growth. CEO Dan Schulman noted in the earnings press release that "technology leaders are choosing our fiber network to power the next generation of AI infrastructure." The company recently expanded its strategic partnership with Amazon Web Services with a landmark AI infrastructure deal valued at over $2 billion. It previously signed a deal worth more than $1 billion with Google. Meanwhile, Shulman stated on the third-quarter conference call that the company is in talks with additional companies on similar deals.

Is Verizon stock a buy?

Shares of Verizon currently trade around $43. They've fallen nearly 8% over the past month due to a post-earnings slump and a potential competitive headwind related to SpaceX. It's now trading at about 8.5 times earnings, at the midpoint of its $5.04-$5.06 per share adjusted earnings guidance range. That's quite cheap compared to the broader market, as the S&P 500 trades at around 19 times forward earnings. This low valuation is why Verizon offers such a high dividend yield.

The reason Verizon trades so cheaply is its slow growth rate. While earnings growth has accelerated this year, investors aren't yet convinced that the company can continue to grow at a mid- to high-single-digit annual rate. If it can, the company could deliver low- to mid-teens annualized total returns when accounting for its dividend income and some multiple expansion. However, if its growth rate slows again (which is very possible if SpaceX enters the U.S. mobile sector), total returns would likely be in the high single digits at best.

I think the likely outcome is somewhere in the middle. Verizon's turnaround is producing measurable results. Its valuation is modest, its dividend is well covered by free cash flow, and it could deliver roughly a 10% annualized return without requiring significant earnings growth. That's a solid outcome, especially for investors seeking income, which is why I think the stock is a buy after earnings.

Matt DiLallo has positions in Alphabet, Amazon, and Verizon Communications and has the following options: long June 2028 $180 calls on Amazon and short September 2026 $280 calls on Amazon. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.