Today’s recommendation is a big U.S. telecom with a major catalyst for growth around the corner. This low-volatility, dividend-paying stock is a good core portfolio candidate for all investors. The new recommendation is followed by a sell alert.
Verizon Communications (VZ)
from Conrad’s Utility Investor
The company’s record $49 billion bond sale has not only locked in financing for its $130 billion buyout of Vodafone’s minority stake in Verizon Wireless, but it was actually doubled, eliminating the need to raise funds in Europe.
The company did pay a slight premium to prevailing rates. But the offer was decidedly weighted toward longer-term debt, and at a cost well below most of the bonds on the balance sheet. Verizon’s successful sale assures the Vodafone buyout will be hugely accretive to its long-run growth.
And I’ve added the stock to the Conservative Income portfolio as a result, with a buy-up-to-target of 48. The company also boosted its quarterly dividend another 3%, a further vote of confidence by management. Borrowing rates affect profits of capital-intensive industries like communications, as well as power, gas, water and energy midstream companies.
[And] the purchase will immediately boost Verizon’s bottom line when it closes, very likely in first quarter 2014. That opens up two possibilities for the company’s wireline business: Greater integration with wireless operations to expand margins, or a spinoff/sale that would slash debt.
The FIOS fiber-to-the-home service already has five million-plus users and is growing revenue at a 15% annual rate. That’s now more than offsetting the company’s losses of plain old phone service customers, who now number just nine million. And with FIOS passing more than 18 million homes, there’s room for acceleration.
Most important, however, the Vodafone buyout has made Verizon’s franchise more valuable than ever. And the stock is back yielding 4.5% following another 1.5-cent dividend increase. Buy Verizon up to 48.
Roger Conrad, Conrad’s Utility Investor, www.ConradsUtilityInvestor.com, 888-960-2759, October 2013