Non-Accretive Acquisitions.
On June 1, the board members of Verizon® said that their dividend will be unaltered in this quarter. This isn’t surprising, but the announcement highlights a commitment that AT&T® and Verizon® share that limits the capabilities of both the companies to grow via non-accretive acquisitions.
Statistics shows that both these businesses pay out more than three quarters of their income as the shareholder dividend. However, the 2.31 dollars annual share of Verizon® is smaller than that of AT&T®. In addition, the sixty-seven percent dividend payout ratio is also expected to decrease this year with the increase in earnings. However, a 12-digit acquisition like the one with Charter Communications® could make Verizon® to borrow much.
Popular analyst, Craig Moffet said that dividend coverage is an issue for Verizon® and pointed out that the company may need to finance a deal with equity to avoid taking debt. It is reported that they will finance their 3.1 billion purchase of Straight Path Communications® with equity. However, there is a limit to the number of equity deals that can be done by Verizon®, as issuing more stocks means having to pay more dividends.
“While leverage limitations argue for a more equity-rich transaction, dividend payout ratios argue for a more debt-heavy one,” Moffett wrote. When it comes to Charter®, “there may be no feasible solution that satisfies both of these considerations,” he said.
It is to be noted that Moffet said last month that, “Things have only gotten worse” for Verizon® when it comes to their chances of buying Charter®. Moffett added that the quarterly earnings report of Verizon® was disappointing and that the ratio of earnings to debt before depreciation, interest, and taxes is the highest in the history of the company.
Internet Of Things
As the rate of new subscriptions of smart phones in the United States has fallen, and as more and more providers are coming up with new and aggressive plans, the growth rate has slowed down for Verizon®. This has led Verizon® to expand to other business lines that compliment wireless and grows in a faster than the wireless offerings. Fiber, media, and Internet of Things have been areas of target for the mergers and acquisition team of Verizon®.
It is true that Verizon® is one of the best internet providers and the largest mobile carrier of the country, and acquiring Charter® would help them overcome Comcast Corporation® to be the largest among the home internet providers in the country. But only time will tell how the telecom company moves ahead with their plans.
