Verizon Communications (NYSE: VZ) may be one of the more surprising underperformers in the market today. It operates one of the three nationwide wireless networks in the U.S., and it also manages an extensive fiber network. As a longtime leader in network quality, it should presumably hold a competitive advantage.
Nonetheless, staying competitive with AT&T and T-Mobile US comes at a high cost, a likely consequence of the stock’s poor performance. Thus, as it deals with three key challenges, its struggles will likely continue.
Not surprisingly, the cost of upgrades and maintenance is a tremendous burden for Verizon. Over the past 12 months, the company has spent more than $18 billion on capital expenditures alone. That has contributed to the company’s tremendous debt levels. As of the third quarter, total debt stood at almost $147 billion. Considering its book value is just over $106 billion, that burden places significant strain on its balance sheet.
Image source: Verizon.
However, one of the more notable contributors to its debt was a $53 billion purchase of wireless spectrum in 2021. Spectrum is a type of RF real estate that gives Verizon the right to use prime frequencies in a specific geographic area. Hence, while such control enhances its competitive advantage in quality, it also comes at a tremendous cost.
Moreover, one cannot fully address the debt without addressing a major obstacle to paying down its obligations — the cost of its dividend.
Over the trailing 12 months, Verizon generated over $21 billion in free cash flow. On the surface, that should cover the more than $11 billion in dividend costs. However, that is $11 billion per year that it does not spend toward retiring debt, a move that would almost certainly bolster Verizon’s balance sheet.
Unfortunately, Verizon appears to have become trapped by its dividend. The $2.76 per share annual payout offers a dividend yield of 6.6%, far above the S&P 500 average of 1.1%. Still, instead of buying, income investors may see its payout as a dividend cut waiting to happen, but the situation is more complicated.
Verizon has hiked its payout for 19 consecutive years, which implicitly sets the expectation that such increases will come every year. Reneging on that expectation could diminish confidence in a stock. That happened to its rival, as AT&T’s stock suffered for years after abandoning a 35-year streak of payout hikes, and, knowing that, Verizon is likely trying to avoid the same fate.
Furthermore, Verizon stock does not have any meaningful catalysts. Indeed, Verizon generated $102 billion in revenue in the first nine months of 2025, and no sign has appeared that this pace will reverse course. Still, the revenue growth of just under 3% year over year during that period is too modest to draw growth investors.
The one bright spot from the income statement is that revenue has increased faster than costs and expenses. As a result, the $15 billion in net income for the first three quarters of 2025 rose 18%.
Nonetheless, despite the rising profits, the stock price still declined over the past year. Also, even the P/E ratio of less than 9 was not enough to inspire buying activity. Amid its challenges, investors appear to perceive Verizon as cheap for a reason rather than as a bargain stock with a generous dividend.
As long as conditions remain as they are, Verizon is likely to continue underperforming the market. Although investors often see low P/E ratios and high dividends as a buy signal, Verizon’s heavy debt loads, intense competition, and slow growth have dampened its appeal to investors.
Admittedly, Verizon could likely improve itself in the long run by slashing its dividend and paying down more of its debt. That might hurt its stock for the foreseeable future, but it may be the only way to return Verizon stock to growth.
Ultimately, the path to recovery for Verizon stock is unlikely to come without some pain for shareholders. However, until the company makes some hard decisions, its stock will probably struggle to recover.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
3 Reasons Verizon Stock Will Likely Continue to Underperform the Market was originally published by The Motley Fool
