I hate Verizon Communications Inc. (NYSE:VZ), but I love VZ stock.
Each year, the company hikes its prices. Just last week, I found some new fee on my bill. Verizon jacked up the charges on my cell phone again!
“I’m taking my business elsewhere,” I told the customer service rep, pounding my fist on the table.
I never followed through. Sure, nobody wants to pay more fees. Switching carriers, though, is just too much hassle.
So, I stay and the bill keeps rising. Of course, I’m not the only one ticked off. But how can we fight back?
If you can’t beat ’em, join ’em.
If You’re Tired of Bills, Read This
Your cell phone isn’t the only bill going up.
If you want premium channels on Verizon’s “FiOS” TV, you will now shell out an extra $2.00 per month. Meanwhile, Starz Entertainment subscribers will pay $4.00 more. (Source: “Cable Rates Rise 3%-4% on Average in 2016,” Multi Channel, January 18, 2016.)
In January, AT&T Inc. (NYSE:T) increased the price for its video packages between $2.00 and $4.00 per month. Other cable providers including Comcast, Cablevision, and Time Warner jacked up fees as well. According to Evercore ISI Group, cable bills will increase by three to four percent in 2016. (Source: Ibid.)
How can they get away with this? America, we just need to look in the mirror. Our laziness has made telecom the best business in the world.
Sure, you could knock $10.00 off your bill. But this would require research, contacting other providers, and switching over your information. In some cases, Verizon or AT&T may be the only carrier in town.
For this reason, most people stay where they are. Inertia is a powerful force in consumer-facing businesses. Customers generally don’t switch between cable and wireless providers.
Finance nerds call this trait a “moat,” which protects the business from competitors. For Verizon, this moat is built on switching costs. Once a customer is locked-in, the costs of switching carriers—time and effort—are too much.
When you’re a leader like Verizon, this inertia is good. Last quarter, the company’s retail postpaid churn rate (lost subscribers) was only 0.96%, one of the lowest readings in years. (Source: “Verizon caps transformational year with strong, balanced 4Q results,” Verizon Investor Relations, January 21, 2016.)
This is great news for Verizon stock. By passing on higher prices, the company is able to generate strong free cash flow. Huge profits put them in a position to return cash to investors through dividends.
Source: Verizon Investor Relations
This has resulted in big capital gains, too. Say you had bought 100 shares of VZ stock at the start of 1986 and never added to your position. Thanks to stock splits, you would have 900 shares today.
Imagine if you had split your money between Sprint, Verizon, and AT&T. For the 30 years ended January 31, 2016, a portfolio of these Big Telco stocks delivered a compounded total return of 8.8% per year. This beat the S&P 500 profit of 7.6% per year during the same period.
The Bottom Line on VZ Stock
There are no sure things. However, Verizon’s dividend checks will likely keep rolling in for decades to come. That makes it easier to swallow those rising bills.
Of course, Verizon isn’t the only stock that cranks out reliable distributions. For more ideas, check out our special report, “Secret 424(k) Accounts Creating New Retirement Millionaires?” These accounts pay out huge dividends and yield up to 12%. Click here now to get the full story!