3 Reasons Verizon Stock Will Likely Continue to Underperform the Market

• Verizon's indebtedness levels are an ongoing concern.

• Its generous payout whitethorn not beryllium sustainable.

• Right now, the banal has nary evident catalysts.

• 10 stocks we similar amended than Verizon Communications ›

Verizon Communications (NYSE: VZ) whitethorn beryllium 1 of the much astonishing underperformers successful the marketplace today. It operates 1 of the 3 nationwide wireless networks successful the U.S., and it besides manages an extended fibre network. As a longtime person successful web quality, it should presumably clasp a competitory advantage.

Nonetheless, staying competitory with AT&T and T-Mobile US comes astatine a precocious cost, a apt effect of the stock's mediocre performance. Thus, arsenic it deals with 3 cardinal challenges, its struggles volition apt continue.

Not surprisingly, the outgo of upgrades and attraction is simply a tremendous load for Verizon. Over the past 12 months, the institution has spent much than $18 cardinal connected superior expenditures alone. That has contributed to the company's tremendous indebtedness levels. As of the 3rd quarter, full indebtedness stood astatine astir $147 billion. Considering its publication worth is conscionable implicit $106 billion, that load places important strain connected its equilibrium sheet.

However, 1 of the much notable contributors to its indebtedness was a $53 cardinal acquisition of wireless spectrum successful 2021. Spectrum is simply a benignant of RF existent property that gives Verizon the close to usage premier frequencies successful a circumstantial geographic area. Hence, portion specified power enhances its competitory vantage successful quality, it besides comes astatine a tremendous cost.

Moreover, 1 cannot afloat code the indebtedness without addressing a large obstacle to paying down its obligations -- the outgo of its dividend.

Over the trailing 12 months, Verizon generated implicit $21 cardinal successful escaped currency flow. On the surface, that should screen the much than $11 cardinal successful dividend costs. However, that is $11 cardinal per twelvemonth that it does not walk toward retiring debt, a determination that would astir surely bolster Verizon's equilibrium sheet.

Unfortunately, Verizon appears to person go trapped by its dividend. The $2.76 per stock yearly payout offers a dividend output of 6.6%, acold supra the S&P 500 average of 1.1%. Still, alternatively of buying, income investors whitethorn spot its payout arsenic a dividend chopped waiting to happen, but the concern is much complicated.

Verizon has hiked its payout for 19 consecutive years, which implicitly sets the anticipation that specified increases volition travel each year. Reneging connected that anticipation could diminish assurance successful a stock. That happened to its rival, arsenic AT&T's banal suffered for years aft abandoning a 35-year streak of payout hikes, and, knowing that, Verizon is apt trying to debar the aforesaid fate.