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This Reliable Buffett Stock Is a Dividend Champion

Verizon (NYSE: VZ) has shown to be a consistently well run, high-quality business. In this clip from “The Rank” on Motley Fool Live, recorded on April 25, Motley Fool contributors Zane Fracek and Jason Hall discuss why Verizon could be a good choice for investors seeking a stable, income stock.

Zane Fracek: So Verizon, I mean, I’m sure everyone is familiar. They tout being the largest cellphone carrier that built the widest, largest network in the U.S. for coverage. And I’m trying not to play too much into that game. I feel like it’s a lot of marketing going back and forth. I think what really matters is the efficiency of the business because, in a way, I think of wireless carriers and telecommunication businesses as utilities, right? Where you have such a wide, recurring revenue stream, and it’s kind of hard to grow. I mean the market is so penetrated at this point. There are some growth opportunities. To see how Verizon has been doing, for Buffett, it hasn’t been great considering they bought in, I think, 2021. So they’re down a little bit on the purchase compared to the other one I’ll talk about, which is Apple (NASDAQ: AAPL), which has been a lot better for them. It’s the seventh largest holding, and they own about 3.8% of Verizon. So, not as much voting power there as we see with things like Apple, and American Express (NYSE: AXP) even that had like 20% ownership. They’re not growing that fast, growing at like 1% a year for the last five years, but they’re growing their earnings a little bit faster. That said, management is really excited about the opportunity for 5G and something called Verizon Plus Play, which I actually just read about. I didn’t realize this was in the cards for them, that they want to make an aggregation streaming service, which is something that I think a lot of people have been wanting or at least considering or talking about. Because it feels like there’s so many different subscriptions to manage, why can’t it just be in one place? It’s a business that’s been really acquisitive, acquiring, I think, about 10 companies I’d say on average for the past decade or more. Really acquisitive. And that’s kind of allowed them to grow, and they’re in a stage now where they’re not growing that fast, but they’re able to return a lot of value to shareholders, increasing their dividend consistently. I think I ranked it as high as I did basically just on the dividend. I think it’s really impressive. I think management is doing a pretty good job, although they just cut their expectations for next year. They’ve been losing some customers. I forget exactly what it was, but I think they’re pretty confident that they’ll come back. I think they’ve been doing a pretty good job at keeping the turnover really low as well. This is a consistent story in telecom now, with AT&T (NYSE: T) and Verizon both at about 1% customer churn per year. So that’s good, they’re not spending extra money on acquiring new customers or the costs associated with getting someone onto a new plan. It’s just a very consistent business. I’m curious what you guys think. You guys also listed them pretty high, right? 
Jason Hall: I’ll jump in here real quick. I think, depending on what you’re looking for as an investor, if you’re looking for a stable, high-quality business that’s well run, that can kick off a reasonable amount of cash flow, increase at a modest amount every year, and increase how much of that is returned to investors? Yeah, I think absolutely. The dividend yield, Zane, I’m not sure if you brought that up. I was making a chart for something I want to share to answer somebody’s question but I think it’s at like a three or four-year high. So I think now is a wonderful time to buy this if you’re looking for income or dividend growth. It’s just a really, really high quality business. I do have some concern, because it’s a massive debt pile. I mean it’s well-managed and they have a pretty good ladder of when they have to, you know, refinance that debt. But rising interest rates are going to cut into their cost of capital, and that’s going to carry over to their returns. So I do think that could be a little bit of a headwind over the next 10 years, but it’s just such a well-run business if you’re looking for a stable, income stock. It’s wonderful.American Express is an advertising partner of The Ascent, a Motley Fool company. Jason Hall has no position in any of the stocks mentioned. Zane Fracek has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Verizon Communications and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy. –

Verizon (NYSE: VZ) has shown to be a consistently well run, high-quality business. In this clip from “The Rank” on Motley Fool Live, recorded on April 25, Motley Fool contributors Zane Fracek and Jason Hall discuss why Verizon could be a good choice for investors seeking a stable, income stock.

Zane Fracek: So Verizon, I mean, I’m sure everyone is familiar. They tout being the largest cellphone carrier that built the widest, largest network in the U.S. for coverage. And I’m trying not to play too much into that game. I feel like it’s a lot of marketing going back and forth. I think what really matters is the efficiency of the business because, in a way, I think of wireless carriers and telecommunication businesses as utilities, right? Where you have such a wide, recurring revenue stream, and it’s kind of hard to grow. I mean the market is so penetrated at this point. There are some growth opportunities. To see how Verizon has been doing, for Buffett, it hasn’t been great considering they bought in, I think, 2021. So they’re down a little bit on the purchase compared to the other one I’ll talk about, which is Apple (NASDAQ: AAPL), which has been a lot better for them. It’s the seventh largest holding, and they own about 3.8% of Verizon. So, not as much voting power there as we see with things like Apple, and American Express (NYSE: AXP) even that had like 20% ownership. They’re not growing that fast, growing at like 1% a year for the last five years, but they’re growing their earnings a little bit faster. That said, management is really excited about the opportunity for 5G and something called Verizon Plus Play, which I actually just read about. I didn’t realize this was in the cards for them, that they want to make an aggregation streaming service, which is something that I think a lot of people have been wanting or at least considering or talking about. Because it feels like there’s so many different subscriptions to manage, why can’t it just be in one place? It’s a business that’s been really acquisitive, acquiring, I think, about 10 companies I’d say on average for the past decade or more. Really acquisitive. And that’s kind of allowed them to grow, and they’re in a stage now where they’re not growing that fast, but they’re able to return a lot of value to shareholders, increasing their dividend consistently. I think I ranked it as high as I did basically just on the dividend. I think it’s really impressive. I think management is doing a pretty good job, although they just cut their expectations for next year. They’ve been losing some customers. I forget exactly what it was, but I think they’re pretty confident that they’ll come back. I think they’ve been doing a pretty good job at keeping the turnover really low as well. This is a consistent story in telecom now, with AT&T (NYSE: T) and Verizon both at about 1% customer churn per year. So that’s good, they’re not spending extra money on acquiring new customers or the costs associated with getting someone onto a new plan. It’s just a very consistent business. I’m curious what you guys think. You guys also listed them pretty high, right? 

Jason Hall: I’ll jump in here real quick. I think, depending on what you’re looking for as an investor, if you’re looking for a stable, high-quality business that’s well run, that can kick off a reasonable amount of cash flow, increase at a modest amount every year, and increase how much of that is returned to investors? Yeah, I think absolutely. The dividend yield, Zane, I’m not sure if you brought that up. I was making a chart for something I want to share to answer somebody’s question but I think it’s at like a three or four-year high. So I think now is a wonderful time to buy this if you’re looking for income or dividend growth. It’s just a really, really high quality business. I do have some concern, because it’s a massive debt pile. I mean it’s well-managed and they have a pretty good ladder of when they have to, you know, refinance that debt. But rising interest rates are going to cut into their cost of capital, and that’s going to carry over to their returns. So I do think that could be a little bit of a headwind over the next 10 years, but it’s just such a well-run business if you’re looking for a stable, income stock. It’s wonderful.

American Express is an advertising partner of The Ascent, a Motley Fool company. Jason Hall has no position in any of the stocks mentioned. Zane Fracek has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Verizon Communications and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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