Verizon's $1B Google Deal: A New Growth Engine for the 6.3% Dividend?

Verizon (VZ) reported second-quarter results on July 24, beating expectations and raising full-year guidance. The highlight was a $1 billion+ dark fiber agreement with Alphabet's Google, which will use the fiber to connect its AI data centers.

Dark fiber is leased fiber-optic cable that customers light with their own equipment, providing dedicated capacity. This deal is part of a growing trend as tech giants invest heavily in AI infrastructure.

CEO Dan Schulman indicated this is just the beginning, with additional deals expected by year-end that could total multiple billions in revenue over several years. He emphasized that Verizon's low-latency fiber network is ideal for AI data centers.

While the $1 billion deal is small relative to Verizon's $34.3 billion quarterly revenue, it targets the business segment, which has been sluggish. Business revenue grew only 2.6% year over year to $7.2 billion, but operating income jumped 37%. A pipeline of long-duration fiber contracts could revitalize this segment.

Verizon also reported strong subscriber growth: 184,000 postpaid phone net additions and over 550,000 total mobility and broadband additions. Service revenue growth is expected to accelerate from 2.8% to nearly 4% by Q4.

For income investors, the key takeaway is Verizon's improving cash flow. Free cash flow for the first half of 2026 was $10.2 billion, up 16% year over year, with dividends consuming less than 60% of that. This leaves ample room for debt reduction and buybacks.

Management raised full-year guidance for the second consecutive quarter, now expecting free cash flow growth of 9-10% and adjusted EPS growth of 6-7%. Adjusted EBITDA hit a record $13.7 billion, up 7.2%.

The dark fiber deal adds a new revenue stream tied to AI infrastructure spending, which is a massive growth wave. While still small, it signals a potential shift from a slow-growing connectivity business to one with a growth catalyst.

Verizon's stock yields about 6.3% at $46 per share. The dividend is well-covered, and the new deals could support future dividend growth rather than just maintenance.

However, total revenue fell 0.7% year over year due to a drop in equipment revenue, and EPS fell 22% on special items. Adjusted EPS rose 6.6%, showing underlying strength. The growth story is still emerging, but the trajectory is positive.