Tuesday, February 23, 2010

Verizon's CFO gives us some confidence in their juicy dividend yield...(VZ)

Mr. Cramer had Verizon CFO John Killian on his show, to discuss the company's big 6% dividend yield. A yield this high normally gets people worried that the dividend might be cut or that capital expenditures must be increased - especially in a capital-intense business like telecom.

Killian points out the HUGE amounts the company spends - $7billion their wireless network alone - to keep their networks in top shape, and points out that even after that, they have ample room to protect (and raise?) the dividend.





Could investors be worried about the company's leverage? Sure, but in their most recent quarter, EBITDA was 7.6times higher than interest expense - a very comfortable margin. The company's Free Cash Flow Yield is approximately 17%, with a cost of debt (due in 2037 in this case) of 6%. Far too big a difference between those two numbers. Verizon shares could yield 5% on their dividend and the stock would be ten dollars higher. They're a bargain....


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