I always get questions about two telecom stocks: AT&T stock and Verizon stock. I could be speaking about dividend stocks at an event, or just talking about the weather, and really, people will ask me about those two stocks regardless of what I talk about. I could divulge the secret to immortality and afterwards, the same guy would have raised his hand and asked, “What do you think of AT&T (T)?”
These two telecom stocks are widely owned and followed. They are likely core holdings in an awful lot of dividend stock portfolios. Although only one of the two stocks has been in the Cabot Dividend Investor portfolio, I will weigh in with an opinion on the desirability of the two investments right now in deference to the demand I’m sensing from dividend investors.
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Verizon vs. AT&T Stock: Which Is the Better Telecom Stock?
Telecom Stock Analysis: AT&T (T)
AT&T is one of America’s two largest telecom providers along with Verizon, with about a 45% share of the U.S. wireless market. But the company is no longer just a telephone company. Now, it’s a mega media conglomerate. The company’s $85 billion purchase of Time Warner in 2018 got it into the content business; the deal was a colossal failure, as AT&T spun off its media assets from that deal into a new one with Discovery to create a different kind of content giant.
The business’ earnings now are divided between wireless, consumer entertainment (including DirecTV and other cable services, fixed line and internet), fixed phone lines for businesses, media and the rest in Latin American wireless and satellite TV.
I don’t like the focus on all those other businesses. Conglomerates tend to eventually start divesting themselves of noncore businesses to unlock shareholder value. And these businesses are mature and changing rapidly. Cable TV and fixed phone lines are quickly fading away as streaming services and wireless appear poised to make them obsolete. I know I won’t have cable TV or a fixed phone line in the near future. I’m not an outlier, as pay TV subscribership is down every year.
Media content is good but it’s hard to predict where it’s going with the emergence of Netflix, Amazon Prime, Hulu, YouTubeTV and now Apple TV+ and Disney+. AT&T forked over $85 billion for Time Warner, and made themselves laden with a massive $209 billion debt load—only to abandon those plans three years later. That’s not good business.
Investors didn’t like the Time Warner acquisition in the first place—the stock has been down despite decent operating performance. The most recent quarterly revenues came in slightly lower than the year-ago quarter and with lower margins. Plus, the company’s profitability has been inconsistent at best over the last few years. At the same time, AT&T stock is down 23% in the last five years, despite rising nearly 25% so far in 2024 alone.
Even with cash flow growth, AT&T will need every bit of it to service the debt, build a 5G network and pay the dividend (currently yielding 5.15%). Even if everything goes well, it’s hard to see how the company can deliver much in terms of capital appreciation. I wouldn’t rush to sell T stock if I already owned it … but I wouldn’t buy it either.
Telecom Stock Analysis: Verizon (VZ)
Much of what is true about AT&T is also true of Verizon, with one key difference: Verizon didn’t delve as heavily into other businesses as AT&T. It is more focused on the core wireless business, where it has the biggest market share and higher profit margins than AT&T.
Verizon has made big purchases too, most infamously of AOL and Yahoo, both of which it sold in 2021 to Apollo for a mere $5 billion. The difference is that Verizon only shelled out $9 billion for these companies, a far cry from the $130 billion AT&T spent on DirecTV and Time Warner. Verizon also has a hefty debt load, but that is mostly from buying the other half of Verizon Wireless from Vodafone (VOD) years ago.
Verizon also has cable TV and fixed-line businesses that are fading. However, the more honed focus on wireless enables them to do it a little better. And wireless subscriber growth has been much more impressive than AT&T’s. It’s also squeezing out better profits. Like AT&T, it will have to spend most of its cash flow on debt service, building out the new 5G network and paying the dividend, currently yielding a slightly better 6.08%.
AT&T stock and Verizon stock are both relatively cheap, and both stocks pay solid dividends, but you can guess which one of these stocks is a candidate for the Cabot Dividend Investor portfolio. If you want to know what other dividend stocks I’m recommending right now, you can click here to subscribe to my Cabot Dividend Investor advisory.
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*This post is periodically updated to reflect market conditions.
