VZ - Verizon Is A Good Dividend Hideout Despite Mixed Q1 Numbers - Hold

2024-04-29 06:52:40 ET

Summary

• Last week, Verizon presented a mixed set of numbers for Q1 2024, with revenues missing consensus estimates.
• The company's dividend yield of 6.7% is still attractive in the current interest rate regime and uncertain macroeconomic environment; however, surging treasury yields are making it less appealing.
• Verizon's stock is undervalued at current levels, and its 5-year price target of $67.72 implies an expected CAGR return of ~11% over the next five years.
• I continue to rate VZ stock a "Hold" in the high $30s.

Introduction

In early January 2024, I downgraded Verizon Communications Inc. (VZ) to a "Hold" rating, citing significant deterioration in long-term risk/reward on the back of a quick-fire year-end rally in its stock:

In light of a rapid +25% jump in its stock, Verizon's long-term risk/reward has shifted drastically, with a 5-year expected CAGR falling from ~16% to ~11%. For investors willing to accept lower returns in exchange for lower volatility offered by Verizon, VZ stock is still a decent buy given its double-digit expected CAGR. However, Verizon Communications Inc.'s expected return has dropped under our investment hurdle rate of 15%, and so, I am downgrading Verizon's stock to a "Hold" rating.

Now, I continue to believe that Verizon is a good hideout for long-term focused dividend investors due to its utility-like cash flow generation and a solid ~6.5% dividend yield. As such, we will continue to hold all of our Verizon shares at TQI.

Source: Verizon Is Up 25% In 4 Months - Is The Stock Still A Buy? (Rating Downgrade)

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