Are 88% Of The People Wrong?
The Dynamic Wealth Report
November 10, 2009
Last week I opened my cell phone bill and almost had a heart attack. I
can’t believe how much money I’m spending every month to stay connected
to family and friends. That prompted an informal poll…
Maybe I could find a cheaper cell phone service…
Walking around the office, I asked everyone what cell phone service they
used and how they liked it. The answers were surprising.
An amazing 88% of the people use the same carrier (the same one I have)!
I couldn’t believe it. No wonder the profits in the cell phone business
are off the charts… more on that in a moment.
The most astonishing fact was this little tidbit here… most people were
happy with their service. One said it was the best in Arizona. Talk
about a compliment.
What company was the lucky winner? Who received all the high praise?
It was none other than Verizon Communications (VZ).
Now, I know Verizon well. They’ve been my cell phone provider for years. Best of all, I recently added a little MiFi device to my wireless plan.
The MiFi is a cool gadget that can change your life.
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When I moved into my new house, I was struggling to get internet
service. We live a bit further out in the country than I realized. We
don’t have cable or an actual telephone line. Clearly a cable modem or
DSL is out of the question. I looked into adding the internet option to
my satellite TV package. But the pricing was ridiculous.
I started searching for other ways to connect to the internet… that’s
when I stumbled across the portable MiFi.
This amazing device is the size of a deck of cards. It connects to the
internet using a 3G modem and the nearby cell towers… It then creates a
mini wireless network. Within 30 feet, you can connect up to five different
computers.
Set-up was easy and connection speeds are great. Within 20 minutes of
opening the box, I was connected and surfing the web!
Here’s the best part… this little device travels.
Last month I went to Flagstaff. I took my laptop and the little MiFi
device. When we got to the cabin, I powered it up and 30 seconds later I
was connected to the internet… just like home.
You can even use the MiFi in the car… imagine your own wireless network
traveling across the country with you!
Of course, the device is offered by a number of carriers. Verizon and
Sprint offer it right now. And, AT&T should be rolling it out soon.
So my Verizon bill is going even higher.
The device itself is made by a company called Novatel Wireless (NVTL).
It’s a super successful product, and no doubt the stock will do well.
Unfortunately, that will only encourage cheap knockoffs and competing
products.
The people who will really benefit from the MiFi device are the service
providers. They get to charge for more usage and more data (remember my
phone bill?). An average provider plan costs around $50 per device per
month.
Let me tell you, as millions of these devices hit the network, service
provider revenues are bound to move higher.
And that’s why I took a closer look at Verizon.
Over the last five years, Verizon’s traded between $25 and $45 a share.
It hit the $25 level just a few months back at the heart of the market
downturn.
Right now the company is trading right around the $30 level. Even if it
were to climb to new highs, it’s not exactly a big winner. But that’s
OK. The company has an $85 billion market cap and is a steady performer.
Verizon did $88 billion in sales in 2006. That grew to $93 and then $97
billion over the next two years. Right now they’re on track to cross
$100 billion in sales this year.
And revenue isn’t their only strong suit. Net income has been stable as
well. Over the last few years, Verizon’s generated anywhere between $5.5
billion and $6.4 billion in profits per year.
When the company recently announced a quarterly loss, I took a closer
look. The hit was due to a larger than expected minority interest
expense. In my mind, it’s an accounting issue… not a problem with the
business.
What really caught my eye was valuation.
The cash flow the company’s throwing off is simply amazing. They’ve been
generating on average more than $7 billion in cash from operations over
the last four quarters.
The other positive valuation point is the dividend.
Right now the company pays shareholders $0.475 per share every quarter. A little quick math and we get a dividend of $1.90 per year. That’s a
robust yield of 6.5% annually.
You haven’t seen yields like this in years.
Verizon is a perfect example of a stable company with solid growth. I’m
not expecting a big 1,000% winner in the next few weeks or months though. Nope,
this is a long term investment… combine the nice dividend with some
steady growth and over time we should do well. Just a few days back I
bought some in my own account.
88% of the people can’t be wrong!
Last week, Hyatt (H) and Ancestry.com
(ACOM) went public. Now this isn’t shocking news. The good news comes
from their performance. Here we are, just a few days later, and both
stocks are trading above the IPO price. This will bring more buyers to
the IPO market and encourage more financings.
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