Is Verizon making a mistake?

“The “Can you hear me now?” guy may be endorsing Sprint instead of Verizon these days. But Verizon is the one that’s getting a much better reception from Wall Street.

Can that last if Verizon winds up scooping up troubled Yahoo though?

 Verizon stock has surged 17% this year. That makes it the third best performer in the Dow, only slightly behind UnitedHealth and Exxon Mobil.

Verizon has done better than wireless rivals Sprint and T-Mobile  as well as cable kingComcast. It is slightly lagging that of its former parent AT&T though.

Why are investors so enamored with Verizon? The big reason is that the company pays a juicy dividend — which yields 4.2%.

That makes “Big Red” (as well as Ma Bell, which yields 4.7%) attractive to conservative investors worried about a sluggish global economy and a possible Brexit in Europe who crave a higher yield than what you can get from government bonds.

The 10-Year U.S. Treasury has a rate of just 1.68%. Yields in Germany recently dipped below zero, joining Japan and Switzerland in the negative rate club.

So it’s understandable why investors desperate for any sort of income would like Verizon. But that’s not the only thing the company has going for it.

Verizon recently settled a labor dispute with striking landline workers. That should allay some fears investors had about the possibility that Verizon would fall behind in new customer installations for its FiOS TV and phone service.

But the damage may already be done. Verizon’s CEO and CFO both warned that results for the second quarter could be hurt by the strike. Analysts responded by cutting their earnings forecasts for the quarter and full year in the past month.

That’s a bad sign considering that Verizon isn’t the most dynamic of companies to begin with. Earnings are only expected to increase by about 3% a year, on average, for the next few years. Sales are barely budging at all as well.

And that’s why the possible Yahoo acquisition could be a problem for Verizon.”

Trivatech Group.



cnnmoney .com

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