Verizon's Frontier Acquisition Raises Concerns for Shareholders

A report highlights potential risks for Verizon's shareholders following its acquisition of Frontier Communications. As Verizon faces mounting debt and the need to maintain dividends, income investors should brace for possible payouts reduction amid financial pressures.

Date: 10-09-2024

AI Rating: 4

The report discusses Verizon Communications (NYSE: VZ)'s planned acquisition of Frontier Communications Parent (NASDAQ: FYBR) and the implications it has for shareholders, particularly income investors. Verizon's high dividend yield of 6.5%, significantly above the S&P 500 average of 1.3%, is at risk due to the substantial debt burden the company is facing, which exceeds $160 billion after assuming Frontier's debt.

Moreover, although Verizon generated over $19 billion in free cash flow over the last 12 months, it needs to generate more than $8 billion in annual free cash flow not tied to dividends. This poses a challenge given the current financial landscape. The ongoing increase in Verizon's dividend payouts over 18 consecutive years places additional pressure on the company to maintain its reputation among investors.

Additionally, the report highlights AT&T's recent dividend cut example, framing a potential path that could see Verizon also reducing its dividend payments. As pressure mounts from competition and the need to manage its crippling debt, there may be an increased likelihood of a dividend cut, which could lead to falling stock prices and lost investor confidence.

Stocks: VZ FYBR