Verizon (VZ 5.99%) stock is making big gains Tuesday following the publication of its fourth-quarter earnings report. The company’s share price was up 5.8% as of 2:15 p.m. ET, according to data from S&P Global Market Intelligence.
Verizon posted non-GAAP (adjusted) earnings per share of $1.08 on revenue of $35.1 billion. Earnings for the period were in line with Wall Street’s expectations, but the 0.6% sales decline that the business posted was less than expected. The telecom giant beat the average analyst sales target by roughly $550 million.
While the business saw a slight annual sales decline in the quarter, this was primarily due to continued declines for wireline services and lower wireless equipment revenue. Verizon posted encouraging results along most key fronts for the business.
The company added a total of 449,000 net postpaid phone customers and 413,000 net broadband customers in the quarter. All told, the company added 1,460,000 total retail postpaid customer additions in the period. Total revenue from the company’s wireless service revenue rose 3.2% year over year to reach $19.4 billion.
It was a strong quarterly performance, and investors have responded by bidding up the company’s stock. Are the telecom’s shares still a good investment?
Verizon stock still looks like a smart buy
Even with today’s big gains, Verizon stock still trades at non-prohibitive levels. The company also continues to offer one of the best overall dividend profiles on the market.
VZ PE Ratio (Forward) data by YCharts.
Trading at under 9.5x this year’s expected earnings and sporting a roughly 6.3% dividend yield, Verizon stock continues to offer an attractive combination of passive-income generation and capital appreciation potential.
Due to its high debt load, the company’s valuation has been depressed by the high interest rate over the last couple of years. But with expectations that the Federal Reserve will begin cutting rates this year, one of the main bearish pressures keeping Verizon stock down could begin to fade.
Notably, the telecom giant closed out the year having generated free cash flow (FCF) of $18.7 billion — up from $14.1 billion in the previous year. With strong FCF generation, Verizon’s dividend continues to be well supported.
The company will likely announce another payout increase this coming fall, bringing its consecutive annual payout growth streak to 18 years. Investors who buy the stock at today’s prices will likely enjoy an even higher yield on their shares.
Verizon also looks well-positioned to continue paying down debt, and improving financial foundations could open the door for it to begin buying back stock in the not-too-distant future. If so, that would be another positive earnings catalyst for the company.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
