AT&T (NYSE: T) and Verizon Communications (NYSE: VZ) are two telecommunications giants that are popular with many income investors because of their sky-high yields, and both companies are transforming their businesses with a focus on 5G wireless technology and the expansion of fiber optic broadband.
Following their latest earnings reports, which of these dividend stocks will be the better buy? Let’s take a closer look at their financials and core value propositions to find the answer.
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Market Position and Financial Performance
Both AT&T and Verizon are investing heavily in 5G technology and expanding their fiber optic networks in an effort to grab market share in the lucrative broadband sector.
AT&T made strong progress in its fiber business, reaching 239,000 fiber net adds in the second quarter of 2024. Verizon reported strong growth in its fixed wireless business, achieving 378,000 net adds in the same period.
AT&T reported second-quarter 2024 revenue of $29.8 billion, with wireless service revenue up 3.4% year over year. The company’s adjusted earnings per share (EPS) was $0.57 and free cash flow was $4.6 billion.
Verizon reported total revenue of $32.8 billion in the second quarter of 2024, up 0.6% year over year. The company’s wireless service revenue grew 3.5%, slightly outperforming AT&T. Verizon’s adjusted EPS was $1.15 and it generated free cash flow of $8.5 billion in the first half of 2024.
Comparison of stocks and dividends
AT&T shares have outperformed Verizon’s so far this year, with AT&T up 8.52% compared to a more modest 3.2% gain for Verizon. Both stocks have underperformed the benchmark S&P 500 this year, which isn’t surprising given their appeal as income stocks.
In terms of valuation, AT&T’s stock is cheap, trading at a price-to-earnings (P/E) ratio of 9.8 compared to Verizon’s 14.6, but when compared to the S&P 500’s higher P/E ratio of 27.4, both telecom stocks look cheap.
AT&T currently offers a dividend yield of 6.1% and a dividend payout ratio of 59.7%. Verizon stock offers a slightly higher dividend yield of 6.84%, but its payout ratio of 100% could limit future dividend growth.
Near-term outlook: 5G and fiber optic expansion
Both companies are looking to 5G and fiber optic expansion to drive future growth, with AT&T aiming to reach more than 30 million consumers and businesses with fiber optics by the end of 2025.
Verizon is focused on its “network as a service” strategy, leveraging its 5G network to expand into new business areas and increase average revenue per account.
Wall Street expects both companies to post low-single-digit revenue growth through 2024 and 2025, reflecting fierce competition across the telecommunications industry.
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Key Takeaways
While both AT&T and Verizon offer attractive dividend yields for income-focused investors, AT&T appears to have a slight edge. Its lower payout ratio gives it more safety in its dividend and more room to grow. AT&T’s lower valuation also suggests it has upside potential in the long term.
Choosing between these two telecommunications giants will ultimately depend on your specific income needs and risk tolerance, but AT&T’s combination of a solid yield, low dividend payout ratio, and strong recent stock performance may make it the more attractive choice for many dividend-focused investors.
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George Budwell invests in AT&T. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
The post Which Is the Better Dividend Stock: AT&T or Verizon Communications? was originally published by The Motley Fool.