Shareholders in Verizon Communications (NYSE:VZ) are in the red if they invested three years ago

While it may not be enough for some shareholders, we think it is good to see the Verizon Communications Inc. (NYSE:VZ) share price up 12% in a single quarter. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 36% in the last three years, falling well short of the market return.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Verizon Communications

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the unfortunate three years of share price decline, Verizon Communications actually saw its earnings per share (EPS) improve by 4.0% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. However, taking a look at other business metrics might shed a bit more light on the share price action.

We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. Verizon Communications has maintained its top line over three years, so we doubt that has shareholders worried. So it might be worth looking at how revenue growth over time, in greater detail.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth

Verizon Communications is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Verizon Communications stock, you should check out this free report showing analyst consensus estimates for future profits.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Verizon Communications, it has a TSR of -25% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Verizon Communications shareholders are up 8.2% for the year (even including dividends). Unfortunately this falls short of the market return. But at least that's still a gain! Over five years the TSR has been a reduction of 2% per year, over five years. It could well be that the business is stabilizing. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Verizon Communications is showing 1 warning sign in our investment analysis , you should know about...

We will like Verizon Communications better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.