Dylan Lewis: Why don't we start out with our
safest one? That's Verizon Communications.
Brian Feroldi: I’m sure this is a company
that almost everybody listening is familiar with.
They’re the No. 1 wireless provider in the U.S.
They also provide wireline to lots of customers.
I’m sure lots of people have heard of their
internet offering, which is called FiOS,
which provides video and internet.
This is a company with 117 million wireless customers.
The cell phone has basically
become a utility for consumers today.
They pay it the same way they pay
their electric bill or their water bill.
So, even during a downturn, you can feel really
good that Verizon's core wireless business
is going to hold up extremely well, because
consumers are so willing to pay for their cell phone.
Lewis: Yeah.
This is the company that boasts the best wireless
network nationwide if you look at most industry data.
I think that's particularly big for Verizon
because the wireless industry is incredibly cutthroat.
It's brutally competitive.
But they're able to charge more than a lot
of their peers because they offer the best service,
because they have the most
consistent coverage across the country.
That gives them that premium pricing,
and I think it gives them a little bit more stability,
insulates them from a lot of the competitive pricing
that we see from the Sprints and T-Mobiles of the world.
Feroldi: Yeah. Verizon is
seen as the gold standard network.
They've done a great job with their marketing
to convince people that their network is No. 1
and you should stick with them if you want
the best service, no matter where you are.
Lewis: To your point about the role that phones
play in people's lives, this is something that
a lot of people need to have.
Depending on where you are in the country,
the coverage is super important,
especially in some of the more remote areas where
you can't bank on being near a major metro area
and all of the network benefits
that come with that.
One of the strongest signals to me that business
is doing well is the fact that their postpaid churn is 0.8%.
You compare that to some of the companies that
have steadily discounted to try to acquire customers,
that's about half of what their churn is.
It's clear that the premium pricing,
better coverage model seems to work.
They hold onto customers rather than having
to spend a ton of money to acquire them
only to lose them down the road.
Feroldi: Yeah. I'm sure that postpaid
churn rate is going to surprise some listeners.
I don't know about you, I tried to change
my cell phone provider a couple of years ago
to one of the discounted offerings.
My wife basically said no.
I went with it and she convinced me to come back
because she wasn't willing to give up using Verizon.
Verizon's competitive
position is very strong.
Lewis: Looking back at 2007 and 2008,
the stock did decline, as did the market,
but their decline was lower than the
broader sell-off we saw in the market.
That's a signal of, this is a company that
tends to weather these downturns a little
bit better than a lot of
high-price growth stocks.
For them, curiously, sales actually increased throughout
the recession, which you don't see very often.
Feroldi: Right. Back when the recession was just
picking up, in 2008, that's when the smartphone boom
was starting to take off.
Verizon definitely benefited from that.
Their revenue actually grew through
2008 through 2009 through 2010.
As you mentioned, its stock got walloped,
but that was the Great Recession.
There were very few places that
you could hide in the stock market.
So, the stock did decline, but it was actually
a lower peak to trough drop than the market in general.
Verizon is considered to be a low beta stock,
which means that its stock price doesn't move
up or down very much when
compared to the market in general.
Lewis: Another encouraging sign here,
they're one of the companies that continued to hike
their dividend during the financial crisis.
The dividend is what attracts a lot of people to Verizon.
They're a steady payer.
They've grown their payment over the last
couple of years, and consistently doing it.
Granted, they enjoyed the smartphone boom
and maybe had a little bit more in the coffers
than they would have absent that trend.
But that's a sign you want to see, particularly
from a dividend payer, when you're looking
back at how they
performed over downturn periods.
Another sign of them being a solid stock to
own if you're worried about a lot of volatility,
a lot of risk in the market, is that they
trade at a low valuation, 12X trailing earnings,
12X forward earnings.
That pretty much says it all about
the growth outlook for this business.
Feroldi: Yeah, this company is growing
its earnings at a mid-single-digit rate.
It's about 6% over the last five years.
That's about what investors expect moving forward.
But the type of investor that's
attracted to Verizon is an income investor.
They're holding this stock because they want
to get their hands on the company's dividend yield.
The dividend yield is currently 4.4%. Like you said,
it's been paid for literally more than 30 years.
The type of person that owns Verizon's stock,
is attracted to it, is really there for the dividend.
That type of investor is less likely to sell
when the market goes down, because they're
not in the stock for capital appreciation,
they're in it for the dividend.
So, as long as the dividend remains solid,
I think the stock will hold up very well in
any sort of bear market.
