Verizon (VZ) and AT&T (T) are the two telecommunications sector behemoths. AT&T stock (NYSE:T) and Verizon stock have long been famous among income-seeking investors. Which of these dividend-paying telecom companies is a better investment now?
Back to the Fundamentals
Let’s go through the fundamentals.
AT&T, the world’s largest telecommunications firm, is in transition. During the last two years, AT&T has sold its media holdings, DirecTV and WarnerMedia, and reverted to its telecom origins by substantially investing in 5G wireless and fiber networks.
AT&T has had to reduce its prized dividend. Nonetheless, AT&T stock (NYSE:T) provides a hefty 6.6% yearly yield. However, AT&T’s high dividend yield isn’t the only incentive to consider investing in the company. AT&T stock (NYSE:T) has declined about 10% year to date in 2022, owing to the continued bear market and increased customer late payments. Consequently, the telecom behemoth’s shares are presently trading around an all-time low in price-to-earnings ratio.
So, unlike in the past, when AT&T was primarily a pure-play income investment, the telecom giant’s shares are now also a very appealing value play. In fact, Wall Street believes AT&T stock (NYSE:T) is presently 48% undervalued. As a result, AT&T stock (NYSE:T) may be one of the finest bargains in telecom right now.
Over the previous half-decade, Verizon has maintained a much tighter emphasis on expanding its cellular offerings. This has proved a wise decision, giving the corporation greater leeway to spend on wireless band spectrum and other infrastructure critical to its 5G plan.
Verizon has been working to improve the coverage area, speed, and reliability of its 5G network, and Root Metrics named the firm the most dependable 5G operator in the first half of this year. Verizon stock (NYSE:VZ) is currently down around 21% year to date, and the large sell-offs have pushed its price-to-earnings ratio and dividend yield to extremely appealing levels.
Despite significant expenditures on next-generation network technology, Verizon has already achieved 15 years of uninterrupted annual dividend increases and robust free cash flow creation.
Which high-yield telecom stock should you buy?
According to several valuation criteria, AT&T stock (NYSE:T) seems even cheaper than Verizon stock (NYSE:VZ) and provides a higher yield even after its significant dividend reduction. Verizon’s business, on the other hand, seems to be stronger due to management’s determination not to stray too far from the company’s core telecom products.
It may make sense for investors looking for high-yielding companies or wanting to diversify their exposure to the telecom industry to invest in AT&T and Verizon. Otherwise, investors should compare AT&T’s lower value and greater yield to Verizon’s more attractive business prospects to decide which is a better portfolio match.
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