For more than 128 years, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI) has served as Wall Street’s “health” barometer. Though it began as an industrial stock-dominated index with 12 members in May 1896, it’s comprised of 30 highly diverse, multinational companies today.
While all 30 of the Dow’s components share similar traits, such as being time-tested and possessing well-defined competitive advantages, the outlook for these predominantly brand-name businesses differs greatly.
As we push ahead into the shortest month of the year, two magnificent Dow stocks stand out for all the right reasons and can be purchased with confidence by investors, while another is contending with mounting headwinds.
With most of Wall Street focused on high-growth tech stocks and anything having to do with artificial intelligence (AI), the best value in the Dow in February might just be stalwart telecom giant Verizon Communications (NYSE: VZ).
While Wall Street’s bull market has been stretching its legs for more than two years, Verizon stock has tumbled by 26% over the trailing-three-year period (not including dividends). This gross underperformance likely has to do with the Federal Reserve’s aggressive rate-hiking cycle that began in March 2022. Companies that carry a lot of debt on their balance sheet, such as large telecoms, may see their debt-servicing costs rise and financial flexibility narrow as rates climb.
But what investors might be overlooking is that Verizon’s balance sheet has been steadily improving in recent years. When 2022 came to a close, the company was lugging around more than $130 billion in unsecured debt and had an unsecured debt-to-adjusted-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of 2.7. As of the close of 2024, its unsecured debt had fallen below $118 billion and its unsecured debt-to-adjusted-EBITDA ratio is now 2.3. Verizon’s financial flexibility is improving, and its nearly 7% dividend yield isn’t going anywhere.
Ongoing investments to expand the reach of its 5G wireless service are also paying off. Wireless service revenue has grown for 18 consecutive quarters, with Verizon’s strong pricing power playing a key role.
But the unsung hero for Verizon might just be its broadband segment. Even though broadband isn’t the high-growth story it was when this century began, it’s a steady generator of operating cash flow and can entice users to bundle their services. Verizon’s total broadband connections jumped 15% in 2024 to north of 12.3 million.
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