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Is Verizon Stock a Buy Now?

Shares of telecom giant Verizon (NYSE: VZ) have been on the rise. At the time of writing, the stock is up about 14% over the past twelve months. While a rising share price is welcome, perhaps the most attractive aspect of the stock is that it is an income investment.

Verizon’s dividend serves as a reliable source of passive income, given its eighteen consecutive years of increases. It also has an impressive forward dividend yield of 6.5% as of November 7.

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Given these positives, it looks like Verizon stock is worth buying in the long run. But there is a wrinkle to consider. In September, Verizon announced the upcoming acquisition of Frontier Communications parent. Here’s how the Frontier purchase could impact buying Verizon stock.

Verizon’s move to acquire Frontier is part of its push to capture customers in the growing fiber-optic internet market. The demand for high-speed internet is increasing due to data-intensive online activities such as video calls and streaming media.

A key benefit of the deal is that it would expand Verizon’s fiber optic network. Frontier offers fiber internet service in 25 states, which would increase Verizon’s fiber footprint to 31 states.

In terms of revenue, Frontier generated $1.5 billion in the third quarter, up 4% year over year due to increasing adoption of its fiber offerings. Meanwhile, Verizon’s fiber product under the Fios brand produced $3.2 billion in revenue in the third quarter, essentially flat from the previous year.

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Once the Frontier acquisition is completed, which is expected to take 18 months, Verizon’s Fios revenues will be boosted by the addition of Frontier. The acquisition makes sense in terms of strengthening Verizon’s broadband business, but there are downsides.

The Frontier purchase will be an all-cash transaction valued at $20 billion. According to media reports, Verizon appears to be taking on debt to finance the deal. The telecom sector already has a hefty $126.4 billion in unsecured debt as of the third quarter.

In addition, Frontier has accumulated more than $11 billion in debt. The company has stated: “We have significant indebtedness, and it is possible that we may incur significantly more indebtedness in the future. Such debt and debt service obligations could adversely affect us.”

In addition, Verizon will need to make further capital expenditures as it continues to expand its fiber network. Frontier alone plans to reach ten million homes by 2026, up from about seven million today.

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