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A Look at Verizon’s Capital Allocation Plans

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Verizon’s capital allocation model

Verizon’s (VZ) CEO, Hans Vestberg, noted that the company’s capital allocation strategy has three main pillars—dividends, capital expenditures (or capex), and debt reduction. Vestberg noted during Goldman Sachs 27th Communacopia Conference, “We think the dividend is important to our customers and to our shareholders and as well as very important that we can maintain or keep the CapEx that we need.” 

The reduction of Verizon’s high debt level would be a priority going forward to attain a healthy balance sheet. At the end of June, Verizon’s short-term debt was $5.5 billion. Its long-term debt was $109.2 billion, bringing its total debt to $114.6 billion. 

However, the company’s total debt fell $4.4 billion sequentially from $119.1 billion in the first quarter. The telecom company used realized cash benefits from tax reforms to strengthen its balance sheet.

Verizon (VZ) noted that it’s committed to paying higher dividends despite high debt levels. In the second quarter, it declared a quarterly dividend of $0.59 per share, up ~2.2% year-over-year. The company paid total dividends of $2.4 billion in the second quarter.

Verizon’s quarterly dividend was equivalent to an annualized dividend of $2.36 per share and a dividend yield of ~4.4% on September 20. In comparison, AT&T (T) had a dividend yield of ~5.9%. Sprint (S) and T-Mobile (TMUS) don’t pay equity dividends.

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