In the battle between AT&T and Verizon CommunICATIONS, which high-dividend-yielding SHARE is the superior investment choice?
Telecommunications giants AT&T (T, -0.44%) and Verizon Communications (VZ, -0.10%) are currently offering some of the highest returns in the stock market. Both companies are performing well under the current market circumstances and anticipate modest, digital-single-digit growth. With interest rates declining and investors seeking high returns, these stocks could gain popularity in the upcoming months.
So, which stock is the better choice for investors right now? Let's examine the arguments.
The case for AT&T
AT&T offers a yield of 5%, an impressive figure considering the stock's performance this year, having increased by 30% since January. Investors have grown more favorable towards AT&T, viewing it as less risky despite its entry into the streaming industry.
However, in recent years, AT&T has shifted its focus away from streaming and towards its core telecommunications operations. The company recently agreed to sell its stake in DirecTV for $7.6 billion, signaling its departure from the costly and highly competitive entertainment sector.
Dividend investors are generally pleased with these changes, as they add stability to AT&T's overarching operations. In its latest quarter, which concluded on Sept. 30, AT&T reported 226,000 net additions to its fiber business, marking the 19th consecutive quarter surpassing 200,000. AT&T now has 28.3 million fiber locations set up, and it aims to increase this number to 30 million by the end of the following year.
AT&T also forecasts that its wireless service revenue will increase by around 3% this year and its free cash flow will range between $17 billion and $18 billion. Given that the company distributes $8.2 billion in dividends over the course of a year, there is ample room for the business to augment the payout, given its strong results.
Additionally, AT&T still trades at a reasonable forward price-to-earnings (P/E) multiple of 10 (based on analyst predictions). Despite its robust performance this year, AT&T could serve as an excellent long-term investment.
The case for Verizon Communications
Verizon's stock performance has not been as impressive as AT&T this year, with its shares increasing by 9% thus far. However, this underperformance might suggest that the telecommunications stock is overdue for a significant surge. Its yield remains attractive at 6.6%.
The company anticipates similar growth to AT&T, stating that its wireless service business will also grow at around a 3% rate this year. Its potential acquisition of Frontier Communications for $20 billion could boost its long-term growth prospects by expanding its fiber network. The deal is yet to be approved, but in the long run, it could increase Verizon's growth rate. As interest rates decline, debt becomes easier to manage, and investor concerns are minimized, especially if the business delivers strong results.
Furthermore, while AT&T may eventually increase its dividend, Verizon investors have come to expect a growing payout from the company. In September, Verizon raised its dividend for the 18th consecutive year, albeit by only 1.9%. Over the past decade, Verizon has increased its payout by 23%. Given that investors already receive a generously high dividend, a substantial increase is not necessary.
Verizon is also more affordable than AT&T, with a forward P/E of 8.9. Although investors have been hesitant to purchase the stock, it has substantial potential for growth due to its attractive yield and improving growth prospects if the Frontier deal is approved.
Which stock should investors purchase now?
Both stocks present attractive investment opportunities, but I would favor Verizon. Its valuation is more reasonable, its yield is more alluring, and its focus on expanding its fiber network should result in higher growth rates in the upcoming years. A bullish attitude towards Verizon, the premier dividend stock, may emerge shortly.
In light of the detailed analysis of both AT&T and Verizon Communications, investors might find Verizon to be a more compelling choice due to its more reasonable valuation and higher yield. Its focus on expanding its fiber network could lead to enhanced growth prospects in the near future. Furthermore, Verizon's consistent track record of increasing its dividend over the past decade could make it an appealing option for income-focused investors.
