For groups such as Verizon and AT&T, which are unable to grow above inflation, it was therefore natural for valuations to automatically adjust downward to ensure dividend yields two basis points above the ten-year rate.
The slight drop in rates at the beginning of the year gave the operators' market capitalizations some breathing room. In the United States, there is strong political pressure for the central bank to further ease its monetary policy, particularly with a view to reviving the real estate market.
Momentum traders are quite right to keep an eye on Verizon.
With net debt of $150bn and a stagnating operating cash flow, the operator has been under pressure from its shareholders to deliver. It has done so by cutting its investment program—which is necessarily extensive to cover fiber and 5G coverage—to its lowest level since 2019.
This has meant an immediate boost to free cash flow, which was expected to reach $20bn this year, comfortably covering dividend payments of around $11.5bn and, hopefully, some semblance of debt reduction.
This is clearly what investors are expecting, as they have valued Verizon since the end of the pandemic at a dividend yield of between 6% and 7%, compared with 4% to 5% previously. It is true that financial leverage has increased in the meantime, while return on equity has declined.
