The Stock of Dividend Darling Verizon Climbs on Upbeat Outlook. Is It Time to Buy the High-Yield Stock?

Key Points

• Verizon shares got a lift after the company offered an upbeat outlook.

• The company's broadband business is doing well, and it should get a boost next year when it closes its acquisition of Frontier.

• The stock looks attractively valued, with a safe, well-covered high dividend.

• 10 stocks we like better than Verizon Communications ›

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Shares of Verizon Communications (NYSE: VZ) have struggled to keep up with rival AT&T the past couple of years, but the stock recently got a lift after posting solid second quarter results and issuing upbeat guidance. The company's stock price is now up about 7% on the year, while it also carries an over-6% yield.

Let's see if now is the time to jump into the stock.

Image source: Getty Images.

Broadband leads the way

Verizon's wireless business is still its most watched, but it has been its broadband business that has been leading the way. The company added 293,000 net broadband subscribers in the quarter to 12.9 million, an over 12% increase compared to a year ago. It added 278,000 fixed wireless subscribers, and 15,000 net Fios subscribers.

Its consumer wireless business, meanwhile, continues to lose subscribers after enacting a price hike earlier this year. It shed 51,000 postpaid consumer wireless subscribers, who are subscribers that are billed monthly. This is opposed to prepaid subscribers, who pay for their services up front.

Prepaid subscriber additions increased by 50,000. Overall consumer wireless service revenue rose 2.3% to $17.4 billion, as postpaid average revenue per account climbed by a similar percentage to $147.50.

Business service revenue rose 1.6% to $3.6 billion. The company added 65,000 wireless retail postpaid net additions, which include connections to phones, tablets, and smartwatches. Approximately 42,000 of those additions were for smartphone connections. However, total business revenue edged down 0.3% to $7.3 billion, as it continues to churn off business wireline subscribers.

Overall, Verizon's Q2 revenue rose 5.2% to $34.5 billion, topping the analyst consensus of $33.74 billion, as compiled by LSEG. Wireless service revenue increased by 2.2% to $20.9 billion, while wireless equipment revenue surged 25.2% to $6.3 billion.

Adjusted earnings per share (EPS) climbed 6% to $1.22 from $1.15 a year ago. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 4.1% to $12.8 billion.

Looking ahead, Verizon maintained its full-year 2025 forecast for wireless revenue to grow between 2% and 2.8%. However, it increased the low end of its profitability forecasts. It now expects adjusted EPS to grow by 1% to 3%, and for adjusted EBITDA to rise between 2.5% and 3.5%.

The company also boosted its operating cash flow outlook to be between $37 billion and $39 billion. After capital expenditures (capex), that would result in free cash flow of between $19.5 billion and $20.5 billion.

Data source: Verizon. Table by author.

Checking in on the dividend

Verizon's biggest draw continues to be its dividend. The stock yields about 6.4%, and more importantly, that payout is well covered by free cash flow. Through the first half of the year, Verizon generated $8.8 billion in free cash flow and paid out $5.7 billion in dividends, good for a 1.5x coverage ratio. That gives the company plenty of breathing room to invest in the business and keep raising the dividend.

Meanwhile, the company just increased its operating cash flow and free cash flow guidance. This is being helped by new tax legislation, which allows it to immediately 100% depreciate certain assets that are placed into service this year.

Verizon's balance sheet is also solid. Its unsecured leverage is 2.3x, which is very manageable, given how much free cash flow it throws off.

Even if the economy softens, Verizon has a wide margin of safety. The dividend isn't just safe -- it's set to continue to head higher.

Is it time to buy the stock?

Verizon's earlier price hike continues to impact wireless churn, but the company is working to try and improve retention through such methods as using artificial intelligence (AI) to help improve the customer experience. Meanwhile, it continues to do a good job of adding broadband subscribers.

Broadband should become even more important after the company closes its acquisition of telecom company Frontier Communications sometime next year. Verizon is actually reacquiring a lot of fiber assets that it sold to Frontier back in 2016, when it sold the assets to reduce debt after some large-spectrum purchases and to focus more on its wireless business.

Frontier has since expanded its fiber network, and the acquisition will now greatly expand Verizon's fiber network in states outside the Northeast and Mid-Atlantic, including Florida, Texas, and California. The deal will allow the company to more widely bundle mobile and home internet services together. That could help give it an edge when competing against AT&T and cable companies, and position it well for next year.

From a valuation standpoint, Verizon trades at a forward price-to-earnings (P/E) ratio of 9x based on 2025 earnings estimates, well below the 13x multiple of AT&T. While Verizon has had some struggles with postpaid wireless additions, I think the Frontier deal could put the company is a strong position to bundle services to a much wider group of customers, giving it strong potential upside.

As such, given the volume gap and this potential catalyst, I think the stock is a solid option for income-oriented investors to buy right now.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.