Fundamentally Sound Verizon Pulls Back Into Buying Opportunity

Key Points

• High-yielding Verizon pulls back in Q2, creating a buying opportunity for dividend growth investors. 
• This buy-and-hold stock is improving earnings quality and has confidently reaffirmed 2025 guidance.
• Analysts and institutional trends support this market in Q2; new highs may be possible before the end of the year.

Verizon NYSE: VZ is a classic story about a baby getting thrown out with the bathwater. There are many reasons for the market to fear in Q2 2025, but not regarding Verizon. While some internal metrics were lackluster or weak, there is a mitigating factor, and the telecom business remains fundamentally sound. 

The sequential 28% decline in equipment sales and 67% contraction in retail additions align with the idea of economic stalling related to Trump's tariffs, policy changes, and seasonal trends. If equipment and retail additions remain weak, there may be cause for concern. Until then, Verizon’s high-yielding dividend is safe and reliable. The distribution is expected to grow, and the stock is cheap. 

VZ is trading at under 10x earnings in the low $40s—a compelling valuation that adds to the case for buying the stock. Verizon’s earnings quality has improved over the past year and is expected to remain solid in 2025, allowing for debt reduction, reinvestment, and capital returns. The payout in early FY2025 is worth $0.68 quarterly, or about $2.72 annually, yielding more than 6.25% as of late April. 

Assuming the company continues its trend, the distribution is expected to grow at a modest single-digit pace later in the year. The balance sheet reflects the impact of investments over the preceding 12 months, including reduced cash and debt. The net result is that equity rose by 1% and leverage declined. Leverage remains low with long-term debt less than 1.25x equity. 

Verizon Had a Solid Q1: Reaffirms Guidance for 2025

Verizon had a solid Q1 with strength in most reporting segments. The company’s revenue grew by 1.5% to $33.5 billion to outpace MarketBeat’s reported consensus by 65 basis points. Total wireless grew by 2.7% and accounted for 62% of the net, while equipment sales grew by 0.7% annually.

Verizon reported market share gains in broadband and strength in the consumer sector, up 2.2%, offsetting weakness in business. Business sales were the sole area of contraction, down by 1.2% year over year. 

Margin news is good. The company improved its operating leverage, allowing it to grow earnings at a slightly accelerated pace. Adjusted EPS is $1.19, 3% higher, outpacing the consensus by 340 bps, but it is the cash flow improvement that is impressive.

Verizon improved its cash flow from operations by roughly 1,000 basis points and its free cash flow by 33%. Regarding the guidance, Verizon reaffirmed its full-year outlook, calling for 2% to 2.8% growth in wireless, slightly faster adjusted EBITDA growth, and free cash flow of around $18 billion. 

Institutions and Analysts Trends Support Verizon Stock Price in Q2

The institutional and analyst trends support Verizon’s stock price in Q2 and are unlikely to change following the Q1 report and guidance update. Those trends include increasing coverage, firming sentiment, an upward bias in the Moderate Buy rating, a forecast for at least 15% upside from the critical support level, and institutional buying spiking to a multi-year high. 

The critical support target is near $39. It aligns with the bottom of a consolidation range since early 2024. A move below $39 could spell trouble for this market, but it is unexpected. A bottom is expected to form at or above $39, leading to a rebound later in the year. In the longer term, VZ stock is expected to continue drifting upward within the larger range, eventually topping out above $60.