Is Verizon Stock a Buy Now?
Shares of telecom giant Verizon (NYSE: VZ) have been on an upswing. The stock is up about 14% over the past 12 months at the time of this writing. While a rising share price is welcome, perhaps the stock’s most appealing aspect is as an income investment.
Verizon’s dividend serves as a reliable source of passive income, given its 18 straight years of increases. It also sports an impressive forward-dividend yield of 6.5% as of Nov. 7.
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Given these positives, it seems like Verizon’s stock is worth buying for the long haul. But there’s a wrinkle to consider. In September, Verizon announced the impending acquisition of Frontier Communications Parent. Here’s a look into how the Frontier purchase may affect whether to buy Verizon stock.
Verizon’s desire to acquire Frontier is part of its gambit to capture customers in the expanding fiber-optic internet market. 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 network. Frontier provides fiber-optic internet service across 25 states, which would raise 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 thanks to rising adoption of its fiber offering. Meanwhile, Verizon’s Fios-branded fiber product produced $3.2 billion in Q3 sales, which was essentially flat from the previous year.
Once the Frontier acquisition closes, which is expected to take 18 months, Verizon’s Fios revenue will be boosted by Frontier’s addition. The acquisition makes sense in terms of strengthening Verizon’s broadband business, but downsides exist.
The Frontier purchase will be an all-cash transaction valued at $20 billion. According to media reports, Verizon looks to take on debt to finance the deal. The telecom already shoulders a hefty $126.4 billion in unsecured debt as of Q3.
Moreover, Frontier has amassed its own debt in excess of $11 billion. The company has stated, “We have a significant amount of indebtedness, and we may incur substantially more debt in the future. Such debt and debt service obligations may adversely affect us.”
Adding to this, Verizon will incur further capital expenditures as it continues to expand its fiber network. Frontier alone plans to reach 10 million homes by 2026, up from about seven million today.
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