I have been slowly buying shares of Verizon (VZ 0.42%) over the past few years. The big draw is the telecom giant's big-time dividend. It currently yields over 7%. That's several times higher than the S&P 500's dividend yield (1.2%).

In addition to that lucrative income stream, I think Verizon has a lot of upside potential due to its dirt-cheap stock price. That combination of income and value is why I recently bought more of the telecom stock. Given its current valuation, I plan to load up on more shares this year.

A low-risk, high-yielding payout

High-yield dividend stocks tend to have higher risk profiles. They often have high dividend payout ratios, questionable growth prospects, and weak balance sheets. While Verizon has experienced some growth-related headwinds in recent years, it has a rock-solid financial profile.

Verizon produced $26.5 billion of cash flow from operations through the first nine months of last year. While that was down from $28.8 billion in the year-ago period, it covered its capital expenditures ($12 billion) with $14.5 billion to spare. That free cash flow easily funded the company's dividend outlay ($8.2 billion), enabling it to retain cash to strengthen its already solid balance sheet.

The company ended the quarter with a 2.5 times leverage ratio, an improvement from 2.6x in the year-ago period. Verizon has a lower leverage level than rival AT&T, which ended the third quarter at 2.8x (above its target in the range of 2.5x). Verizon's leverage supports its solid investment-grade bond ratings (A-/BBB+/Baa1). The telecom company's long-term goal is to further strengthen its financial foundation by reaching an even lower leverage target in the 1.75x-2.0x range.  

Getting back to growth

Verizon is using its strong balance sheet to accelerate the growth of its fiber network by acquiring Frontier Communications in a $20 billion all-cash deal. The transaction will expand its fiber network to reach 25 million premises. The company expects that the purchase --which likely won't close until next year -- to be immediately accretive to its earnings while generating at least $500 million in annual cost synergies.

The transaction will initially cause Verizon's leverage ratio to rise. However, the increased free cash flow following the deal will enable the company to quickly reduce debt. It will likely achieve its long-term leverage target by 2027. That could allow Verizon to launch a share repurchase program to complement its high-yielding dividend.

In addition to the future growth from Frontier, Verizon is starting to see the benefits of its heavy investment in expanding its broadband and 5G networks, which should continue. During the third quarter, it achieved its fixed wireless subscriber target 15 months ahead of schedule. It also delivered double-digit growth in total broadband connections. These factors have the company on track to start delivering profitable growth again.

That growth would enhance Verizon's ability to continue increasing its dividend. It delivered its 18th consecutive annual dividend increase late last year. That's the longest current streak in the U.S. telecom sector. While Verizon has been delivering very modest growth (less than 2% annually in recent years), it has been able to continue growing its dividend, which is something AT&T hasn't been able to do (it cut its payout by nearly 50% in 2022).

An attractive value

Given Verizon's growth issues in recent years, its share price has slumped (down nearly 30% over the past three years). Because of that, it currently trades at just eight times forward earnings, which is significantly below the broader market (more than 23 times). That dirt-cheap earnings multiple is why Verizon has such a high dividend yield.

I believe Verizon can supply me with an attractive stream of dividend income that should continue to rise modestly. On top of that, I think its share price will eventually recover as its earnings begin growing. Add that to the income, and I think it could produce a solid total return over the coming years. That's why I continue buying shares and plan to purchase a boatload more in 2025 if its stock continues to trade at its current level.