Why Verizon Fell Today

Shares of Verizon (NYSE: VZ) fell on Monday, down as much as 8.1%, before recovering to a 5.8% decline as of 1:54 p.m. EDT.

There was a spate of news for Verizon today. First, the company announced it would spin off its international enterprise-focused operations into a joint venture with BT Group (OTC: BTGO.F), while also announcing headcount reductions and severance charges as part of its own cost-cutting initiatives.

Additionally, rival and partner Comcast (NASDAQ: CMCSA) announced its intentions to separate its broadband and mobile services from its NBCUniversal and Sky media properties. There was also a report over the weekend that Space Exploration Technologies (NASDAQ: SPCX) was in discussions with Charter Communications (NASDAQ: CHTR) to use its terrestrial network for a mobile phone service.

Finally, today was the first day Verizon began trading outside of the Dow Jones Industrial Index.

A busy day for Verizon, but not in a good way

All of these factors could be playing into Verizon's decline today, though it's not clear exactly which news item contributed, or by how much.

As part of the new joint venture with BT Group, Verizon will contribute $625 million in cash to the new entity and will also record a loss of $700 million to $800 million in the second quarter. These are the negatives of the spin-off-and-sale. However, Verizon also noted the transaction should be accretive to second-quarter adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), likely due to large expense cuts.

Meanwhile, Comcast rose on the news of its separation, and Charter rose on the news of its talks with SpaceX. Professional investors or ETFs that track telecom stocks could be selling other names in the group, such as Verizon, to raise funds to buy Comcast and Charter shares. Comcast's stock is down over 25% over the past year; Charter's stock is down a stunning 63%; and Verizon posted a small gain. Therefore, investors may be selling more fully valued Verizon shares to buy Comcast or Charter.

As for the SpaceX-Charter speculation, investors might see it as a competitive threat to Verizon's traditional mobile offering. However, it should also be noted that Charter actually uses Verizon's network on a wholesale basis to power its mobile offerings. So, the competitive implications of a potential SpaceX service, if it even happens, are more complicated.

Image source: Getty Images.

Finally, Verizon was removed from the Dow Industrial Average, replaced by Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). The move was announced last week, but today was the first trading day in which Verizon traded outside the Dow. That could have led to selling pressure from index funds that track the index.

Verizon remains a dividend play, but watch out for disruption

Despite today's downturn, Verizon's fundamentals haven't changed much. It is still part of a U.S. oligopoly of mobile wireless telecoms that dominate the industry. There isn't much growth there, but Verizon does pay a hefty 6.1% dividend.

However, there's a big trade-off for that nice dividend yield. Verizon doesn't have that much growth ahead of it, and it faces intense competition even with its traditional rivals. Add in the uncertainty over a potential SpaceX entry into the mobile industry, and Verizon's stock price seems capped for the foreseeable future.

Billy Duberstein and/or his clients have positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Comcast and Verizon Communications. The Motley Fool has a disclosure policy.