AT&T (NYSE: T) and Verizon Communications (NYSE: VZ) are two telecom giants favored by many income investors for their exceptionally high yields. These companies have been transforming their businesses, focusing on 5G wireless technology and fiber broadband expansion.
Which of these high-yield dividend stocks is the better buy following their most recent earnings reports? Let's dive into their financials and core value proposition to find out.
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Market position and financial performance
Both AT&T and Verizon are investing heavily in 5G technology and expanding their fiber networks to capture market share in the lucrative broadband segment.
AT&T has made strides in its fiber business, adding 239,000 fiber net additions in the second quarter of 2024. Verizon reported strong growth in its fixed wireless business, with 378,000 net additions in the same period.
AT&T reported 2024 second-quarter revenue of $29.8 billion, with wireless service revenue growing 3.4% year over year. The company's adjusted earnings per share (EPS) was $0.57, and it generated $4.6 billion in free cash flow.
Verizon posted total revenue of $32.8 billion in Q2 of 2024, a 0.6% increase year over year. Its wireless service revenue grew 3.5%, slightly outpacing AT&T. Verizon's adjusted EPS was $1.15, and it generated $8.5 billion in free cash flow for the first half of 2024.
Stock and dividend comparison
AT&T's stock has outperformed Verizon's year to date, with AT&T up 8.52% compared to Verizon's more modest 3.2% gain. Both stocks have underperformed the benchmark S&P 500 this year, which isn't surprising, given their core appeal as income stocks.
On the valuation side, AT&T's stock is cheaper based on its price-to-earnings (P/E) ratio of 9.8, compared to Verizon's 14.6. Compared to the S&P 500's hefty 27.4 P/E ratio, though, both telecom stocks scan as a bargain.
AT&T currently offers a dividend yield of 6.1% with a payout ratio of 59.7%. Verizon's shares pay a modestly higher yield of 6.84% but with a 100% payout ratio, which could limit future dividend growth.
Near-term outlook: 5G and fiber expansion
Both companies are banking on 5G and fiber expansion to drive future growth. AT&T aims to pass 30 million-plus consumer and business locations with fiber by the end of 2025.
Verizon is focusing 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 is forecasting low-single-digit top-line growth for both companies over the course of 2024 and 2025, reflecting the intense competition in the telecom industry as a whole.
Key takeaways
While both AT&T and Verizon offer compelling dividend yields for income-focused investors, AT&T appears to have a slight edge. Its lower payout ratio provides a greater margin of safety for the dividend and room for growth. AT&T's lower valuation also suggests more upside potential over the long term.
The choice between these two telecom giants will ultimately depend on your specific income needs and risk tolerance. However, AT&T's combination of a solid yield, lower payout ratio, and better recent stock performance makes it a potentially more attractive option for many dividend-focused investors.
George Budwell has positions in AT&T. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy .
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