Verizon's $20 billion acquisition resets dividend outloook

Verizon (VZ) just locked in a deal that could supercharge its dividend for years to come.

The wireless carrier recently completed its $20 billionacquisition of Frontier Communications. While most coverage focuses on the expanded fiber footprint, the real story is what this means for shareholder returns. 

For income investors who have watched Verizon raise its dividend for 19 consecutive years, this acquisition could mark the start of an accelerated phase of payout growth.

I've covered telecom long enough to know that big acquisitions often destroy value. But this one feels different. 

The math on convergence and cost synergies points to meaningful free cash flow improvement, and that flows straight to the dividend.

Verizon spots convergence goldmine

Here's what makes the multi-billion-dollar acquisition special for dividend investors.

Verizon now controls nearly 30 million fiber passings across 31 states plus Washington, D.C.

The telecom heavyweight can now bundle fiber with wireless to create sticky, high-margin customer relationships and further enhance cash flow stability. 

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According to Verizon's third-quarter earnings call, customers who take both mobility and fiber services have a churn rate that's nearly 40% lower than the company's overall mobility base. 

Lower churn means longer customer relationships. Longer relationships mean more lifetime value and more cash generation.

Right now:

• Only 18% of Verizon's consumer postpaid phone customers take a converged offering. 
• With Frontier's footprint, that penetration rate should jump significantly. 
• Each percentage point increase in convergence represents millions of dollars in incremental high-margin revenue.

CEO Dan Schulman made it clear during the October earnings call that convergence is a top priority. "I'm a very big believer in convergence," Schulman said. "I think it is extremely powerful. I think it offers not just meaningful revenue synergies, but as Tony mentioned, when you combine mobility with fiber, you see churn rates that are almost 40% less than what we see with our traditional mobility."

A widening free cash flow base

CFO Tony Skiadas laid out the cash flow case during the earnings call, and it's compelling. Skiadas said:

That's a bold statement given that Frontier is currently burning about $1 billion in cash annually.

How does Verizon plan to deliver free cash flow growth while absorbing a cash-burning acquisition? Three ways:

• First, significant cost transformation. Schulman talked about running leaner, being more efficient with capital spend, and deemphasizing areas not aligned to growth.
• Second, capital efficiency. Skiadas noted that Verizon expects to come in at the lower end of its 2025 capital expenditure guidance range or better. That discipline will continue post-acquisition, with investments focused on high-return areas like mobility, broadband, and AI infrastructure.
• Third, portfolio rationalization. Schulman didn't mince words about legacy businesses. "We have parts of our business that are costing us billions of dollars of margin," he said. "I think we can think much more clearly about how do we invest in growth areas and divest or exit those that are not."

Verizon's growing dividend payout

Verizon's balance sheet provides ample room to support dividend growth, even with the Frontier acquisition.

• The company ended the third quarter with net unsecured debt of $112 billion, down $9.4 billion year over year. 
• Its net unsecured debt-to-consolidated adjusted EBITDA ratio dropped to 2.2x, within the company's target leverage range and ahead of schedule before the Frontier closing.

Skiadas confirmed that the long-term leverage target range of 2.0x to 2.25x "is not going to change." He added that the Frontier acquisition will temporarily add about 0.25 to the leverage metric, but only for a short period.

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"We are going to operate outside of it for a period of time, but the overall goal is not going to change," Skiadas said. "The focus is generating strong cash flows and executing across the entire capital allocation framework, and that includes continuing to pay down debt."

More importantly, Schulman made the dividend commitment crystal clear:

"Our goals and our priorities are clear," he said. "Accelerating shareholder returns by increasing our bottom line growth, and a steadfast commitment to our dividend."

He doubled down on that commitment later in the call: "The dividend is sacrosanct to us."

• For the first nine months of 2025, Verizon generated$15.8 billion in free cash flow, up 9% compared to the same period in 2024. 
• Third quarter free cash flow hit $7 billion, up nearly 17% year-over-year and the highest reported in the industry by nearly $2 billion for the period.
• Analysts forecast the free cash flow to increase from $19.89 billion in 2025 to $25.40 billion in 2029.
• Given an annual dividend expense of roughly $11.50 billion, Verizon’s payout ratio is less than 58% this year.
• A growing FCF base should help raise the annual dividend further. Verizon has raised its annual payout from $1.54 per share in 2004 to $2.76 per share in 2026. 

The wireless recovery play

The acquisition also addresses a critical problem that's been weighing on Verizon's growth: wireless customer losses.

Verizon lost 7,000 postpaid phone customers in the third quarter after implementing price hikes. The company's churn rate hit 0.91%. That's not sustainable, and it's been pressuring the stock.

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Schulman acknowledged the problem head-on. "My top strategic imperative for Verizon is to grow our customer base profitably across our mobility and broadband subscription businesses," he said. "We are going to compete and grow responsibly across all market segments."

• The Frontier footprint gives Verizon the ammunition to compete. 
• The company's wireless share significantly under-indexes in Frontier's territory. 
• That's a huge opportunity to capture share through bundled offers that provide better value than standalone wireless service.

Schulman expects the convergence strategy to help Verizon "meaningfully increase our share of industry net adds" while driving "significant improvements in retention to optimize the lifetime value of our customer base."

If Verizon can stabilize and grow its wireless customer base while expanding broadband through Frontier, the combined revenue and margin improvement would be substantial. That directly supports higher dividend growth.

A focus on cross-selling

Wall Street tends to focus on cost synergies in telecom acquisitions, but the revenue synergies here could be even bigger.

• Frontier added133,000 new fiber internet customers in the third quarter, reflecting 20% year-over-year growth. 
• The company's fiber broadband revenue spiked 25% compared to 2024. 

Those are impressive growth rates for a telecom asset. Now layer in Verizon's wireless cross-sell opportunity. 

• If Verizon can convert even a fraction of Frontier's fiber customers to bundled wireless plans, the revenue lift would be meaningful. 
• And those bundled customers come with that 40% lower churn rate, making the revenue more predictable and valuable.
• Verizon also gains pricing power through bundling. Customers who take multiple services are less price-sensitive and more loyal. 
• That means less promotional spending and better margins over time.

Schulman emphasized this point during the call. "Convergence is one of our most significant near-term growth opportunities," he said. "The pending acquisition of Frontier will enable us to serve approximately 29 million fiber passings, creating a massive cross-sell opportunity."

Verizon stock trades at a discount

Verizon's dividend yield currently sits around 7%, which is attractive in any market environment. The company raised its dividend in September for the 19th consecutive year, reflecting management's confidence in the business.

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In addition to its tasty 7% yield, Verizon stock also trades at an 18% discount to consensus price target estimates. It means cumulative returns could be closer to 25% over the next 12 months. 

The Frontier acquisition strengthens that confidence. Here's why:

• First, it diversifies revenue streams. Verizon becomes less dependent on wireless service revenue, which has been under pressure from competition and pricing dynamics. Fiber broadband provides a growing, high-margin complement to the wireless business.
• Second, it improves customer economics. The convergence opportunity drives both higher revenue per customer and lower churn. That combination expands margins and generates more cash to fund dividend growth.
• Third, it creates operating leverage. As Verizon scales its fiber footprint and captures synergies, fixed costs get spread over a larger revenue base. That margin expansion flows directly to free cash flow.

Schulman summed up the financial priorities clearly: "We will be much more deliberate in how we allocate our spend to execute our strategy. This includes an ironclad commitment to our dividend, continued debt repayment and value-creating capital return."

The company's track record backs up that commitment. Verizon has generated strong cash flows for decades and consistently returned capital to shareholders through dividends and share repurchases.

The risks of investing in the dividend stock

No acquisition is risk-free, and Frontier brings challenges.

• Integration execution matters. Verizon needs to successfully combine two large networks and customer bases without disrupting service or losing customers. 
• The regulatory commitments also add costs. According to a Reuters report, Verizon pledged to invest in 75,000 new fiber locations and build 25 new wireless towers in California alone to secure approval. Similar commitments were made in other states.
• And Frontier is currently cash flow negative. Verizon needs to turn that around quickly to hit its free cash flow growth targets.

But the setup is favorable. Frontier has been executing well, consistently beating expectations on fiber builds and customer growth since emerging from bankruptcy. 

The company's third-quarter performance showed continued momentum, with strong subscriber additions and revenue growth.

S&P Global analysts called the acquisition "integral to Verizon's current identity and future strategy," noting it positions Verizon to better compete with cable providers who have been aggressively bundling services.

For dividend investors, that competitive positioning matters. Sustainable dividend growth requires sustainable business growth. The Frontier acquisition gives Verizon the assets and strategy to compete effectively in a converging communications market.

The bottom line for Verizon dividend investors

Verizon's $20 billion bet on Frontier isn't just about expanding fiber reach. It's about creating a platform for accelerated free cash flow growth through convergence, improved customer retention, and operational efficiency.

That free cash flow growth supports dividend growth. And with management making an "ironclad commitment" to the dividend while guiding to higher free cash flow in 2026, even with Frontier included, the setup looks attractive for income investors.

The 19-year dividend growth streak should not only continue but potentially accelerate as convergence synergies materialize over the next few years.

For investors seeking reliable income with growth potential, Verizon's post-acquisition story deserves a close look. The pieces are falling into place for a dividend acceleration cycle, and that's exactly what long-term shareholders have been waiting for.

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