Is Verizon Communications Inc. (NYSE: VZ) the perfect stock? No. The “perfect stock” headline is used by financial and business websites and publications to sucker people into reading articles that have little relevance for most investors.
The case for Verizon is a reasonable one for people who do not believe in the value of most equities long-term, or who think the stock market is doomed to periods of rapid sell-offs. Verizon has a dividend yield of 4.5%, which has to be attractive when government short-term paper yields next to nothing and the yields on high-quality corporate bonds are nearly as low.
Verizon has a pretty good business in the wireless industry, where it is the leading company in America based on subscriber count. It does have one troubled business that will never improve. Verizon does not like to talk about it, and neither do brokers who push the stock. People cancel their home landline service at a greater rate each year. The presence of cellphones and VoIP will damage the Verizon landline sector for years.
Verizon is large enough in terms of revenue and profits to demonstrate that its products are not only widely used, but used at a premium enough price for the telecom to make a lot of money. Last year, Verizon’s revenue was $110 billion. The corporation had a $2.4 billion profit. And Verizon has $14 billion in cash and cash equivalents. That is not as much as some large tech firms like Apple Inc. (NASDAQ: AAPL) and Microsoft Corp. (NASDAQ: MSFT). But it is certainly a huge cushion if the economy turns bad again. It is enough so that Verizon’s dividend likely will ever be threatened
The trouble with Verizon for many people is that the stock will not double, like Facebook Inc. (NASDAQ: FB) might — in a few decades. Verizon trades at $44. It will never trade at $88. It may have a good business and strong profits, but not that good.
People, and magazine editors, debate the relative value of stocks so often that the result is thousands of articles and hundreds of thousands of debates. But the conclusion should be the same. Is Verizon the perfect stock? No.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks