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Verizon (VZ) Hikes Dividend on Solid Balance Sheet Strength

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Verizon Communications Inc. (VZ - Free Report) recently hiked its quarterly dividend payout by about 2% to 65.25 cents per share or $2.61 on an annualized basis. This portrays the company’s solid balance sheet position on the back of a faster 5G rollout across the country and healthy fixed wireless broadband momentum.

Based on the closing price of $41.1 as of Sep 6, the proposed dividend affirms a yield of 6.4%. A steady dividend payout is part of the long-term strategy of Verizon to provide attractive risk-adjusted returns to its stockholders. Additionally, healthy dividend increases at periodic intervals have been one of its key strengths.

This is the 16th consecutive year the company has increased its quarterly dividend. The current hike reflects its inherent financial strength and strong cash flow generated from continued focus on high-margin businesses and healthy execution of operating plans. Verizon has a dividend payout rate of 47.4%. Barring minor hiccups, the rate has remained more or less steady over the past few quarters, indicating that the company is sharing more of its earnings with stockholders.

To boost its liquidity, Verizon has been looking to slash costs through employee reduction, active management of near-term maturities, optimization of overall funding footprint and lowering the cost of capital. It currently has a debt-to-capital ratio of 0.63 compared with 0.54 of the sub-industry. The times interest earned ratio has improved steadily over the past few quarters to 9.8 at present relative to 5.3 of the sub-industry. This suggests that the company is more likely to meet its debt obligations.

Verizon is likely to benefit from a disciplined network strategy backed by a customer-centric business model and diligent execution of operational plans. In addition, the company is focused on making necessary capital expenditures to support the increased demand for network traffic. The continued build-out of OneFiber and C-Band spectrum expansion will expand the reach and capacity of its 5G Ultra Wideband network and will likely enable it to serve an additional 40 million people in the near term.

Verizon is offering various mix-and-match pricing in wireless and home broadband plans, which has led to solid customer additions. With most company-operated retail stores being fully operational and customer activities resuming to pre-pandemic levels, the company witnessed increased adoption of 5G devices and premium unlimited plans. Moreover, in the enterprise and wholesale business, Verizon is changing its revenue mix toward newer growth services like cloud, security and professional services.

To help small business enterprises tide over the coronavirus-induced adversities, the company has introduced Complete Business Bundle solutions. With reliable, plug-and-play Internet connectivity, desk phone and security solutions with 24/7 tech support, these solutions enable the digital transformation of small business entities.

Verizon further expanded Fios Forward to support digital inclusion and provide opportunities for underserved households to thrive in the digital world. With no data caps, Fios customers can experience faster upload and download than comparable plans. The company’s focus on online content delivery, mobile video and online advertising should drive growth.

All these positives and sound financial management probably led to the quarterly dividend hike.

The stock has lost 25.2% in the past year compared with the industry’s decline of 21.8%.

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