Verizon’s bold moves merit consideration
Verizon Communications (NYSE: VZ), recently with a dividend that yielded 4.8 percent and a price-to-earnings ratio near 20, is worth a close look.
Verizon has been making some big moves. It just bought AOL for $4.4 billion, including AOL’s TechCrunch and Engadget sites, and The Huffington Post. The acquisition opens up a whole new opportunity in mobile video and advertisements. AOL’s technological advantage in selling ads and delivering high-quality video is a strategic advancement for Verizon. Indeed, AOL is taking over Microsoft’s ad sales business.
Verizon also plans to launch a video service focused on mobile devices that will offer sports, concerts and other types of entertainment. This makes good sense, as people are spending an increasing amount of time consuming content and performing everyday functions on their mobile devices.
In Verizon’s last quarter, revenue grew more slowly than expected, but earnings per share jumped 21 percent year over year, thanks to Verizon Wireless posting 6.9 percent revenue growth and adding 565,000 net retail postpaid connections in the quarter.
Verizon continues to shift its customer base to 4G devices, which typically carry higher service fees than basic and 3G phone customers. As of the end of last quarter, 70 percent of Verizon’s postpaid connections were on 4G devices. Consider this telecommunications giant for your portfolio.
Ask the Fool
Q: What’s “dollar-cost averaging”? – N.M., Kinsey, Alabama
A: It’s when you buy into an investment over time with set installments. For instance, if you want to invest $4,000 in Dodgeball Supply Co. (ticker: WHAPP) stock, you might buy $1,000 worth of shares every three months for a year. You’d do this regardless of the stock price – for example, buying 20 shares when the price is $50 and 18 shares when it’s $55.
This approach has you buying more shares when the stock slumps and fewer when it’s pricier. It’s a good way to accumulate shares if your budget is limited, or if you’re not confident enough to invest a big chunk of money all at once. (Keep your commission costs in check, though!)
Buying stock regularly through dividend reinvestment plans or direct investing plans is a form of dollar-cost averaging. Learn more about them at fool.com/School/DRIPs.htm, directinvesting.com and dripinvestor.com.
Q: Would you recommend borrowing against my credit card to invest in the stock market? – L.K., Salt Creek, Colorado
A: No! The U.S. stock market has, over many decades, averaged close to 10 percent per year in returns. But that’s just an average that may not hold up over your investing time frame. In some years, the market loses money – such as 22 percent in 2002 and a whopping 37 percent in 2008. (Of course, it soared 32 percent in 2013.) Meanwhile, credit cards have recently been charging an average variable interest rate of about 16 percent.
In the long run, you’re likely to lose more than you gain if you try to make money in stocks while forfeiting money to credit card issuers.
My dumbest investment
My dumbest investment happened after I watched “Mad Money” on CNBC after work one day. Jim Cramer said that Best Buy looked good, so I bought some shares. It cost me almost $2,000 to learn to watch my stocks more closely. – K., online
The Fool responds: It’s not a good idea to buy or sell a stock just because some talking head on TV (or in an article you read) recommended doing so. For one thing, you usually don’t know their track record, and even if it’s pretty good, this particular call might end up being a regrettable one. Also, the guru might have a good case for buying a stock, but whenever he changes his mind and no longer thinks it’s undervalued, you probably won’t hear about it. So you’ll keep hanging on, even when it’s not such a promising investment.
It’s fine to gather insights and investment ideas from savvy investors, but always do your own research and thinking, and take responsibility for your purchases and sales. When you buy a stock, consider jotting down exactly why you’re doing so and at what point you would sell.
Best Buy has been on a rocky road in recent years, but after being in danger of bankruptcy, it’s posting profits and continuing to pay a solid dividend. The company has been beefing up its e-commerce and mobile-device initiatives, and it has plenty of long-term believers.