Verizon Communications Inc. (VZ): Show Me The Money

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Verizon Communications Inc. (NYSE:VZ)Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn’t sustainable. In others, the dividend is so low, it’s not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today, and one day each week for the rest of the year, we’re going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn’t to say that these stocks don’t share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week’s selection.

This week, we’ll take a look at why large U.S. telecom, information, and entertainment services provider Verizon Communications Inc. (NYSE:VZ) boasts an incredible dividend that you can trust.

Can you hear me now?
The downside to the U.S. telecom and entertainment service provider business is that it’s rife with competition. Verizon Communications Inc. (NYSE:VZ) is one of only two behemoth domestic carriers — the other being AT&T Inc. (NYSE:T) — that’s really able to throw its weight around with regard to wireless pricing and flexibility. That doesn’t stop the little guys from trying, however, as Sprint Nextel Corporation (NYSE:S) agreed to a big investment by Japan’s SoftBank, which will give it a majority stake in Verizon Communications Inc. (NYSE:VZ) in exchange for billions of dollars to build out its 4G LTE network. Similarly, T MOBILE US INC (NYSE:TMUS) merged with MetroPCS to give the bigger service providers a run for their money, and it’s been offering no-obligation iPhone contracts to lure new customers.

But, the competition doesn’t end there for Verizon. It also has to contend with growing competition from satellite TV providers such as DIRECTV (NASDAQ:DTV) and DISH Networks, whose attraction is growing. DIRECTV (NASDAQ:DTV), for example, added 400,000 subscribers in its latest quarter and has seen growing strength outside the United States. As someone who signed up for DIRECTV (NASDAQ:DTV) just this past month, let me tell you that the allure matches the promises thus far.

This creates quite the challenge for Verizon Communications Inc. (NYSE:VZ) to grow its presence in the States, as well as recruit new subscribers. Luckily, Verizon has various strategies in place that appear poised to deliver results.

… Loud and clear!
To begin with, Verizon is properly utilizing its 4G LTE dominance. Launching its 4G LTE network in late 2010, Verizon is currently able to offer 4G LTE coverage to roughly 95% of all Americans, throughout 491 cities. Comparatively speaking, AT&T has 4G LTE currently available in 209 markets, while Sprint Nextel Corporation (NYSE:S) and T MOBILE US INC (NYSE:TMUS) offer a few dozen markets each at present capable of delivering 4G LTE speeds. In short, Verizon has more cities covered than its competition combined, which gives it a big advantage in wireless subscriptions.

At the same time, Verizon has smartly rid itself of assets and services that are declining in importance and value. In 2009, Verizon sold landline assets in 14 states to Frontier Communications Corp (NASDAQ:FTR) for $8.5 billion, of which $3.3 billion was in cash. The deal freed up precious cash that Verizon potentially used to build its 4G LTE network while divesting itself of landline assets that are seeing precipitous rural attrition thanks to broadening 3G and 4G wireless coverage. Frontier Communications Corp (NASDAQ:FTR) probably wishes it could take the deal back now, but for Verizon it was another smart strategic move.

Finally, there’s talk that Verizon may be lining up somewhere in the neighborhood of a $100 billion bid to buy out Vodafone Group Plc (ADR) (NASDAQ:VOD)‘s 45% stake in Verizon Wireless. The move now might make a lot of sense for Vodafone Group Plc (ADR) (NASDAQ:VOD), which is struggling in Europe’s slow-growth and austerity-filled environment, giving it the cash it needs to make strategic long-term investments. It would also be great news for Verizon Communications Inc. (NYSE:VZ), which is seeing practically all of its profits from its wireless segment, as my Foolish colleague Evan Niu recently noted.

Show me the money, Verizon
Verizon certainly has delivered for shareholders, with shares having doubled from their lows in July 2010. But it isn’t just the share appreciation that’s been doing all the talking. In 2011, Verizon announced a stock repurchase plan good through Feb. 28, 2014, which would allow the company to repurchase up to 100 million shares of its stock. With some 2.8 billion shares outstanding at the time of the offering, it could reduce Verizon Communications Inc. (NYSE:VZ)’s outstanding share count by 3.6%. Although share repurchases don’t deliver cash directly to shareholders, they do allow for profits to be divided into a smaller number of shares, making a company appear cheaper on a P/E basis and potentially pumping up its share price.

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