Investors Should Still Avoid Verizon Stock Despite Rising Earnings. Here’s Why.

by

In summary, during the second quarter of 2025, Verizon Communications (VZ) delivered a strong earnings report. Their income, revenue, and free cash flow all increased, which is advantageous to them. Furthermore, their improved outlook suggests positive developments for the telecommunications stock’s growth trajectory.

The report failed to address or ease worries regarding a specific section of the balance sheet that Verizon has found challenging for quite some time. This suggests that unless they make a tough yet crucial decision, it seems likely that the Verizon stock may persist in facing difficulties.

Verizon’s ongoing concern

Verizon’s situation worsened in one key area: total debt.

As of the midpoint of 2025, Verizon’s total debt now stands at almost $146 billion.

The company’s unsecured debt has increased from $144 billion at the end of last year to $146 billion, while its total equity stands at $104 billion. This suggests that the burden of these debts is significant when considering the overall financial position of the company.

Indeed, it’s worth noting that companies like Verizon, AT&T, and T-Mobile have relied significantly on borrowing to fund the development and upkeep of their telecommunication infrastructures.

Until 2021, Verizon’s debt was relatively manageable. However, the company significantly increased its debt with a $52.9 billion investment to purchase C-band spectrum. This spectrum can be compared to radio frequency real estate, as it gives Verizon exclusive access to use a specific frequency within a particular geographic area. This prime spectrum has enabled many of their wireless services offerings.

So why is the debt an issue?

In essence, while the overall debt isn’t automatically problematic, it’s worth noting that over the past year, Verizon shelled out approximately $6.6 billion on interest expenses. This equates to slightly over 4% in interest costs when considering their total debt of $154 billion, which is relatively low compared to some other companies.

Despite an increase in interest rates starting from 2021, Verizon finds itself in a position where approximately $2 billion of its debt is due this year. Given this circumstance, it’s expected that they will need to renegotiate or refinance this debt at elevated interest rates. Consequently, investors should anticipate an upward trend in costs if Verizon maintains its current financial status.

One aspect to consider is the company’s ability to consistently increase its dividends over time, which Verizon has demonstrated with an impressive 18-year track record of raising payouts. To avoid a situation similar to AT&T’s, whose stock faced long-term struggles following its decision to halt a 35-year run of annual dividend increases in 2022.

Verizon’s dividend payouts exceed those of its competitors by a substantial margin. The company offers a dividend yield of 6.4%, equivalent to $2.71 per share, which is more than five times the average of 1.2% from the S&P 500. Compared to AT&T and T-Mobile’s yields, Verizon’s return stands at a considerable 4.1% and 1.4%, respectively.

Over the past year, I’ve noticed that distributing dividends has cost Verizon approximately $11.4 billion. Yet, in the very same timeframe, they managed to rake in a staggering $20.1 billion in free cash flow. This means that, despite this substantial payout, they have resources at hand. However, should Verizon decide to reduce their dividend payments, they could potentially use some or all of that $11.4 billion towards debt retirement.

To date, Verizon hasn’t followed such a practice due to its high return on investment, which attracts income-focused investors. Furthermore, if the experiences of AT&T and other similar stocks serve as an example, a potential dividend reduction might cause short-term stock price drops.

Despite having a low P/E ratio of 10, the stock has struggled to match market performance. However, reducing debt levels could strengthen the financial position, making it more appealing over time.

Loading widget...

Investors focused on earnings might face a double whammy of reduced dividends and decreasing share prices in the short term. However, a lower Price-Earnings (P/E) ratio could mitigate these losses. As the company’s financial health improves, it may attract new investors who are willing to overlook the temporary loss of dividend income, considering the potential gains in the long run.

Making sense of Verizon stock

Even with the positive earnings report, Verizon stock is likely a hold for now.

Although the dividend offered by the company is substantial, the significant costs associated with it and the heavy debt obligations suggest that maintaining this dividend rate might be unsustainable in the long run. This could potentially result in additional challenges for Verizon’s stock if they decide to reduce the dividend to focus more on managing their debt.

Nonetheless, it’s important for investors to understand that AT&T still presents a reliable dividend investment, despite reducing the payout. This suggests that as earnings grow, a stronger financial position, and a relatively low price-to-earnings (P/E) ratio might make Verizon an appealing investment if they focus on reducing debt more aggressively.

Read More

2025-07-25 15:14