Stock of the Day - January 17, 2009

Verizon Communications, Inc. (VZ)

It’s hard to find bad things to say about Verizon (VZ), the enormous telecommunications company. Ever since GTE and Bell Atlantic merged in 2000 to form the behemoth service provider, VZ has constantly expanded its business. Verizon is the biggest service provider in the U.S., outpacing both AT&T (T) and Sprint Nextel (S). The company last trade today at $29.96.  Its stock price has done relatively well in the past year, as it has beaten the S&P 500 by around 12% over the past 52 weeks.

There is no doubt that Verizon has continued to expand every aspect of its business. They’ve stamped an exclamation point on this expansion today by completing their purchase of Alltel Wireless today. VZ paid $5.9 billion for the acquisition and netted 12.9 million customers from the smaller service provider. This deal brought Verizon to a new total of 83.7 million customers.

In addition to the Alltel deal, VZ has recently drawn contracts with NASA and the U.S. Department of Defense. These deals may be worth over $1.2 billion. On top of all this, it is even possible for some of the money from Obama’s stimulus package to find its way to the telecommunications company for the purpose of improving internal infrastructure systems. All of this adds up to a simple conclusion: Verizon has some solid business locked in for the upcoming year.

Verizon’s main competitors are Sprint and AT&T, but Sprint has been lagging behind the other two giants. VZ and AT&T have had some healthy competition lately, especially since the release of the iPhone.  If you’re a Verizon customer you definitely know that you can’t get one of the popular gadgets for your service, and if AT&T is your provider you might be smirking while reading this on your iPhone. Luckily, VZ has the new BlackBerry Storm to compete with Apple’s (AAPL) touch screen phone. I personally am not a huge fan of the Storm, but its sales numbers show that the new phone is stopping VZ customers from changing providers to AT&T.

Last, but definitely not least, is the incredible dividend yield that VZ offers. VZ’s dividend payout is $1.84 per share, which means that it is providing a very legitimate 6% yield. A high yield is very desirable in economically harsh times, as it guarantees you will make some money from your investment. To help your understanding of dividends, check out the Trillionaire Term of the Day from January 8^th.

So, now we have to ask ourselves if it’s worth buying or selling some VZ stock. The main question you should ask yourself about VZ stock is: Will the telecommunications company manage to resist the recession that we’ve found ourselves in? Some analysts have predicted that the cellular market is peaking in volume and that people will be cutting their landlines to cut costs. I disagree. My logic tells me that people will still be carrying cell phones with them and will still need their wireless plans. Most people won’t cut their landlines, and with all of the deals Verizon has been landing lately, they don’t need to worry about an oversaturated market. I personally believe that VZ will stand firm against macroeconomic conditions. If you agree with me, you’re probably in the right mindset to buy the stock.

 

-Matt Schwartz

College Trillionaire