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Verizon will spend most of the benefits gained from the Trump Administration’s tax cuts on writing off investments that will reduce the company’s tax exposure and boosting its dividend to shareholders.
Verizon’s chief technology officer Hans Vestberg told shareholders at an investment conference the company had no plans to spend the $3.5-$4 billion more in operating cash flow that will result from tax cuts on network upgrades, while it will continue to cut as much as $10 billion in costs out of its business over the next four years.
Verizon has attempted to converge its traditional wireline business with its wireless unit since buying out its partner Vodafone. As the two networks gradually merge, Verizon is continuing job cuts and expense reductions, even as the company will enjoy a $16.8 billion reduction in its deferred tax liabilities because of the new permanently lowered 21% corporate tax rate.
Vestberg argued Verizon was likely to waste money if it spent its anticipated windfall on accelerated network upgrades.
“You probably don’t want to have big spikes in the capital allocation because then in the end it drives inefficiencies. We want to be consistent,” Vestberg said. “From an execution point of view you want to be consistent. It’s not helpful to go up and down in capital allocation because it ramps up and down resources—money wasted … But we are always debating. And we should debate in a leadership team the size of Verizon.”
Verizon currently pays out more than three-quarters of its annual income to shareholders in the form of quarterly dividend payments. This morning, Verizon announced it would award 50 shares of restricted Verizon stock to virtually every employee except those in top management. On Tuesday, Verizon stock traded at around $53 a share, making the stock bonus potentially worth around $2,650 for each worker. But employees may not be permitted to sell their shares immediately. In earlier compensation packages that included restricted shares, the stock could not be sold for at least two years, and was subject to forfeit if an employee left the company during that window.
Verizon’s operating plan for 2018 includes a spending budget of $17 billion, an amount that has not changed as a result of the new tax law. Verizon is expected to allocate a significant amount of its budget towards its wireless services, particularly 5G development.
I don’t see this happening to be honest. This is one of the few places that competition in most of the United States is a real thing. To be honest that CFO is probably going to make Verizon lose its number one status sooner then later. They are going to have to change course in a year or two. If you look at Verizon they have been pulling back on the reins one could argue a little to much. Just because they are/were at the top don’t mean they have the ability to stay there. No investment on new spectrum,… Read more »
EJ, I mostly agree.. But there is one point that I would not agree with.. “Other companies beyond US Cellular have basically ignored the Midwest” Actually, T-Mobile changed that a couple years ago.. They have dramatically increased their coverage out there.. Take a look at their new coverage map.. If they continue their expansion, like they did last year, then they will probably have matched Verizon’s coverage over the whole country.. One big difference.. T-Mobile will be “all” their own towers.. Where Verizon’s coverage relies a LOT on partner towers.. I would guess that their “partner” towers make up about… Read more »
Agree w/EJ that Verizon seems to have strong market share in Midwest. T-Mobile seems to be catching up, especially by buying iWireless of Iowa. iWireless in Iowa, western Illinois, eastern Nebraska. Seeing more T-Mobile retail outlets in last 6 months as I travel Illinois.
I really doubt that Verizon will NOT spend some of the tax savings on expanding network Capex. Board of Directors may have something to say. A little early to conclude that VZ will not do this.
“Verizon currently pays out more than three-quarters of its annual income to shareholders” This just shows where their priorities lie.. ” the stock could not be sold for at least two years, and was subject to forfeit if an employee left the company during that window” Taking this into account, they never specified “voluntarily”.. Basically, all they have to do is find some way of firing most of them, within the next 2 years, close down an office (which usually results in downsizing, or sending work out of the country), or just get them to quite, and they are off… Read more »