Verizon Communications, the parent company of Verizon Wireless, said in a statement that it will pay $2.06 of dividend per share this year; that is 3 percent increase in the previously announced profit per share.
The main reason for the increase in dividend, according experts is the increasing profitability in the wireless networks. Smartphone and tablet sales are soaring and that is directly proportion to wireless carriers. Companies like Verizon Wireless, AT&T and Sprint Nextel also sell subsidized smartphones on 2-year service contracts.
Verizon Wireless is US’ largest wireless network with a wider access to different parts of the country. Its 4G LTE network is also the fastest growing in the US. However, the latter is still in the early adoption stage.
“We believe the slightly higher increase was driven by the strong growth the company is seeing in wireless margins and expectations for falling capital intensity in wireline and wireless,” UBS analyst John Hodulik said in a report.
Moody’s, a market research and ranking company suggested that there is huge cash flow growth in wireless carriers in the next few months due to rapid adoption of smartphones and tablets. That will likely increase the rate of dividend as well.
“We forecast that EBITDA (earnings before interest, taxes, depreciation and amortization) minus capital spending, a proxy for free cash flow, will increase almost 11% this year on a combined basis for the nine carriers we follow, before a 12%-14% increase in 2013. AT&T and Verizon generate about 67% of the industry’s revenue and about 82% of EBITDA and will account for most of the gains,” said Moody’s in a statement.
The upcoming release of the new iPhone from Apple is also expected to boost sales at Verizon, one of the carrier partners with the Cupertino-based company. The sales of Android-based phones also plays a vital part in the carriers profitability.