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[video] Verizon Extends Dividend Paying Legacy In Vodafone Deal (Update 1)

Tickers in this article: T VOD VZ

Updated from 9:37 a.m ET to include additional analyst commentary throughout and video segment

NEW YORK ( TheStreet) -- Investors trying to understand the implications of Verizon's $130 billion acquisition of a 45% stake in Verizon Wireless should focus on the telco giant's 2.9% increase to its quarterly dividend.

Verizon had many strategic options heading into the second half of 2013 given its low debt, record margins and high cash-generating abilities. That Verizon chose to use its position of strength in the U.S. wireless industry to buy Vodafone's stake in Verizon Wireless indicates the firm is now moving into a phase where it will focus on its dividend growth above other strategic planning.

At $130 billion, Verizon's acquisition of the remaining 45% in Verizon Wireless is the third-largest deal in corporate history. Still, the acquisition by Verizon is entirely a matter of corporate financial management and it has few strategic implications.

Full control of Verizon Wireless likely will add years of stable dividend growth for Verizon investors. It also means the firm will have far less financial flexibility to make quick moves in the fast-changing telecom industry.

The deal appears to be financially attractive for Verizon and will allow the carrier to consistently increase its earnings and dividend over the next few years. The telecom company is financing its stake purchase with $60.2 billion in stock at near-record share price highs and it will raise about $61 billion in debt for the deal at what are near historic interest rate lows for highly rated corporations. Verizon is also selling back some European assets to Vodafone and will use cash to fund parts of the deal.

For such financial commitments, Verizon said owning 100% of Verizon Wireless will immediately add about 10% to its earnings per share and up to 16% in EPS by the end of 2014. The free cash flow of Verizon Wireless will also help the telecom increase its dividend, which now sits at 53 cents a quarter, or a yield of nearly 4.5%, one of the highest in the Dow Jones Industrial Average .

After the transaction closes, expected in the first quarter of 2014, Verizon will carry a total of $108.7 billion in debt, or about a net debt of 1.9 times pro-forma EBITDA, according to calculations from Evercore Partners analyst Jonathan Schildkraut. Such debt represents about a doubling of Verizon's financial commitments. However, Schildkraut calculated the firm will generate up to $70 billion in annual free cash flow between 2014-2016 allowing it to quickly repay creditors.

While the next few years may be a predictable story of growth in Verizon's earnings and cash returns to investors, the firm is now far more exposed to fundamental shifts in the wireless industry or to new strategies from competitors such as AT&T, Sprint, T-Mobile and possibly Google and DISH Network .