Many investors were not happy with that Verizon Communications‘ (NYSE: VZ) third quarter update on Tuesday. That’s evident from the fact that Verizon shares fell about 5% after the telecommunications giant reported its third-quarter results.
But some investors should be happy with Verizon’s latest update. Why? The company just delivered good news to income investors who love its ultra-high dividend yield of nearly 6.5%.
Verizon reported third-quarter revenue of $33.3 billion, flat year over year and slightly below the consensus estimate of $33.5 billion. It posted adjusted earnings per share of $1.19. Although this result was lower than the adjusted earnings per share of $1.22 in the same period last year, it was narrowly above the average analyst expectation of $1.18 per share.
Wall Street analysts also focused on other numbers in Verizon’s Q3 update. For example, the company reported a total of 363,000 new fixed wireless networks, bringing its subscriber base to nearly 4.2 million. This growth allowed Verizon to reach its target of 4 to 5 million fixed wireless subscribers 15 months ahead of schedule.
However, those aren’t the numbers that matter to income investors. Instead, they are more concerned with the financial numbers that make a difference in keeping Verizon’s dividends flowing and growing. And Verizon gave reasons to be confident in its dividend program in its Q3 update.
CEO Hans Erik Vestberg said in the third-quarter earnings call that Verizon achieved the highest earnings before interest, taxes, depreciation and amortization (EBITDA) in the company’s history. CFO Tony Skiadas noted that Verizon is on track to reach or exceed the midpoint of its full-year adjusted EBITDA guidance range.
Skiadas added: “That strong EBITDA has led to year-to-date free cash flow of $14.5 billion, which is consistent with the prior year.” He pointed out that this year’s free cash flow included an additional $2.5 billion in cash taxes.
Verizon leaders also expressed their strong commitment to the dividend program in the third quarter earnings call. Skiadas reiterated that the company’s top two capital allocation priorities are investing in the business and financing the quarterly dividend.
In September, Verizon announced it was increasing its dividend for the 18th year in a row. Skiadas said: “[O]Our goal is to position the board for further dividend increases.”
How does the telecommunications company achieve this goal? Vestberg emphasized the upcoming acquisition of Border communicationwhich he said would expand Verizon’s total addressable market. He also claimed that Verizon’s broadband, mobility and other services should allow the company to grow its EBITDA and cash flow.
