Verizon's Price Hikes Aren't Pricing Power. What That Means for the 5.5% Yield

Verizon's Price Hikes Aren't Pricing Power. What That Means for the 5.5% Yield

Next month Verizon is raising the price of the discounted Disney streaming bundles it sells to phone customers — part of a round of increases across several discounted offers that land on September 17. The ad-supported Disney+, Hulu and ESPN+ perk goes from $10 to $12 a month; the ad-free version from $20 to $23; a few related bundles by $2 or $3. Read it fast and it sounds like the best thing an income investor can hear: Verizon can charge more without losing customers — pricing power, the moat that lets a dividend grow through inflation. Read it slowly and it is closer to the opposite.

Read the fine print: this is a pass-through

Notice who raised prices first. Disney is taking more for the same content on the very same day — the basic Disney+/Hulu/ESPN bundle from $19.99 to $21.99, the premium tier from $29.99 to $32.99, the legacy bundle from $24.99 to $27.99. Verizon's explanation is that it has no choice: as its partners at Disney "adjust the rates of their services," it "periodically" has to adjust its own perk rates.

These bundles are not Verizon's profit center. They are retention glue — streaming perks priced near cost to keep a household from drifting to T-Mobile or a cable company. When Disney's cost goes up a couple of dollars, Verizon passes it through instead of absorbing it. That protects margins, but it is not a demonstration that Verizon sets prices in its market. It is a demonstration that it takes them.

That is the useful distinction for a dividend holder. A company that can pass through its input costs has real strengths, but the ability to pass through is not the ability to raise the toll and keep the traffic. Verizon's tolls are disciplined by a three-player price war, cheap flanker brands and cable alternatives — and by its own record of losing customers.

The CEO already told you how pricing works

That record is on the tape, from the company's own CEO. On the January earnings call, Dan Schulman — hired in 2025 after a career at PayPal and American Express — said Verizon lost 2.25 million customers over the previous three years, "largely from prior pricing actions as well as competition," and pointed to price increases "without corresponding value" as a primary driver. Postpaid phone churn, the share of the base that leaves, climbed to 0.98% in 2025 from 0.88% in 2024. In July he promised: "We will not raise prices without adding corresponding value for our customers."

A company with genuine pricing power does not spend earnings calls explaining past price increases to its own investors. Yet the hikes keep coming anyway: the Netflix and HBO Max bundle rose from $10 to $13 in May, and Unlimited Ultimate went up $5 in May even though it launched with a three-year price-lock guarantee. The Disney round is the same instinct applied to a cheaper product, and customers are primed to notice — a June Reviews.org survey found 52% of Americans had canceled or downgraded a streaming service because of price. Every one of these moves is a small test of the CEO's own rule.

Why the stock is up 23% anyway

If the pricing story is weak, why is Verizon near its 52-week high, up about 23% this year, with the dividend yield compressed from roughly 7% at the start of the year to about 5.5% today? Because the turnaround Schulman promised is now visible in the numbers.

The second quarter of 2026 was the evidence. Postpaid phone net additions came in at 184,000 against analyst expectations near 106,000, and consumer postpaid adds were the best in five years. Consumer churn fell to 84 basis points from 90 basis points in the first quarter — a second straight quarterly decline. Adjusted EBITDA margin hit a record 40%. Free cash flow rose 24% to $6.4 billion in the quarter, and management raised full-year guidance for the second consecutive quarter, now pointing to free cash flow growth of 9% to 10% and adjusted earnings growth of 6% to 7%.

The market has been paying for that proof. At about $50, Verizon trades near 13 times trailing earnings — a clear premium to AT&T's roughly 8 times — and the yield that looked like an emergency bargain in early 2026 no longer screams. You are being paid less to wait for the fix the data is only beginning to confirm.

The dividend is safe — and slow

For an income investor, this is where the accounting matters. The dividend is about as secure as telecom payouts get: 20 consecutive years of increases, the latest a 2.5% raise to 70.75 cents a quarter, or $2.83 a year. Free cash flow was $20.1 billion in 2025 against roughly $11.5 billion paid in dividends — more than 1.7 times coverage — and management expects free cash flow to grow again in 2026. Against guided earnings of $4.99 to $5.04, the payout is roughly 56%. Nothing here threatens the payment.

But know where that free cash flow surge comes from. It is partly a capex trough as the 5G build-out matures, and partly a decision to stop subsidizing phone upgrades: equipment revenue fell nearly 20% in the quarter as Verizon deliberately cut upgrade volumes by 27%. Total revenue in the quarter was actually down 0.7% from a year earlier. This is a company generating more cash by spending less and selling fewer subsidized phones, not one growing the top line.

That constrains what the yield can do for you. Verizon's own numbers put unsecured debt at $131.4 billion at the end of the second quarter — an investment-grade position, but a leveraged one. It is the reason dividend growth is 2.5% rather than double digits, and why even the expanded $4.5 billion buyback is modest next to the borrowings. You are buying a bond-proxy income position: a covered, slow-growing coupon from a capital-intensive network whose franchise is durable but whose pricing power is not the source of the return.

What a price hike is really telling you

So when a headline says "Verizon hikes prices," resist the tickle of moat. Read it as a pass-through from a supplier, priced by competitors, on a company whose own CEO has admitted that raising prices without value cost it 2.25 million customers. The variable to watch is not the bundle price; it is churn. If the discipline holds — churn stays low, net adds stay positive, prices rise only with value attached — then roughly 5.5% on a covered, steady dividend is a reasonable income position for someone who wants safety and little else. If the base starts leaking again the way it did over the previous three years, this year's re-rating has already given up the room to fall.

Either way, don't mistake the coupon for compounding. In a world where policymakers are comfortable letting inflation run closer to 3%, a dividend growing at 2.5% keeps your real income roughly whole; it does not build it. Verizon is a sound business to hold for what it gives — dependable income with a leveraged balance sheet and low growth — and a poor one to expect more from.