Verizon's Strategic Shift to Free Cash Flow Growth: A Buy for Income and Growth

In the maturing telecom sector, where capital-heavy investments once defined success, Verizon (VZ) is rewriting the playbook. The company is now a master of capital efficiency, leveraging disciplined spending, tax reform tailwinds, and a laser focus on high-margin broadband and wireless services to generate robust free cash flow (FCF). This strategic shift isn't just about survival—it's about outperforming in a world where telecoms are no longer just utilities but enablers of digital transformation. For investors seeking a defensive, cash-generative play with growth potential, Verizon is a compelling case.

The Capex Overhaul: Less Is More

Verizon's 2023 capital expenditures fell to $18.8 billion from $23.1 billion in 2022, a 18.6% drop. By 2024, capex had further declined to $17.1 billion. This isn't a retreat—it's a recalibration. The company is prioritizing projects that deliver the highest returns, such as expanding its 5G network and accelerating fixed wireless access (FWA) deployments. In 2023, FWA net additions surged 31% year-over-year, with over 3 million subscribers by year-end. By 2025, FWA subscribers are on track to hit 5.1 million, driven by the reliability of Verizon's C-Band spectrum.

The reduced capex hasn't come at the expense of growth. In fact, Verizon's free cash flow has soared: $18.7 billion in 2023, $19.8 billion in 2024, and $8.8 billion in the first half of 2025. This trajectory is a testament to the company's ability to balance infrastructure investment with profitability.

Tax Reform: A Tailwind for Shareholders

The 2017 Trump tax cuts were a game-changer for Verizon. The effective tax rate plummeted from 21% to 8%, saving $10.7 billion from 2018 to 2021. These savings directly boosted FCF, enabling the company to raise its dividend and fund buybacks. Now, the 2025 tax reform is amplifying the benefits. With immediate expensing of capital investments, Verizon's FCF is projected to grow by $1.5 billion to $2 billion annually. This tax-driven windfall isn't just a one-time boost—it's a recurring tailwind that enhances profitability and shareholder returns.

High-Margin Broadband and Wireless: The New Engines of Growth

Verizon's wireless segment is a cash cow. In 2025, wireless service revenue hit $20.9 billion in Q2, up 2.2% year-over-year. The Consumer segment's operating income margin of 28.7% in Q2 2025 is a gold standard in the industry. Meanwhile, the Business segment is turning a corner, with operating income jumping 27.6% in Q2 2025. This diversification is critical: as the Consumer segment matures, the Business segment's 5.8% EBITDA growth in 2025 shows Verizon is capturing value in enterprise solutions.

Broadband is another winner. Total connections reached 12.9 million by mid-2025, with Fios and FWA driving expansion. The 12.2% year-over-year growth in broadband connections isn't just a number—it's a shift in how households and businesses access the internet. Verizon's focus on fiber and FWA positions it to dominate the “last mile” of connectivity, where margins are higher and competition is fragmented.

The Buy Case: Defensive and Growth in One

Verizon's strategy is a masterclass in capital efficiency. With a net debt-to-EBITDA ratio of 2.3x and a BBB+ credit rating, the company has the flexibility to reward shareholders without overleveraging. At a 100% dividend payout ratio, investors get a 4.5% yield, while buybacks and tax savings add to per-share value. The stock's forward P/E of 9.5x is a discount to peers, reflecting skepticism about telecoms—but this undervaluation is an opportunity.

For value investors, Verizon's FCF generation and defensive cash flow make it a safe harbor in volatile markets. For growth investors, its 5G, FWA, and enterprise bets offer upside in a sector transitioning to high-margin digital services. The pending acquisition of Frontier Communications, expected to close in 2026, will further expand its fiber footprint and FCF potential.

Final Take: A Buy for the Long Haul

Verizon is no longer just a telecom company—it's a capital-efficient, high-margin player with a clear path to sustainable outperformance. Its reduced capex, tax advantages, and strategic focus on broadband and wireless create a flywheel of growth and returns. In a sector where many peers are struggling with legacy costs and regulatory headwinds, Verizon is the rare telecom that's evolving. For investors seeking a blend of income and growth, this is a stock to own.

Bottom Line: Verizon's strategic shift to free cash flow growth isn't a passing trend—it's a blueprint for long-term shareholder value. Buy and hold.