Why Investors Might Consider AT&T
AT&T holds the lion’s share of the market and shows no signs of losing its position. In the fourth quarter, AT&T added 526,000 postpaid phone net additions, bringing the total for 2023 to 1.7 million.
Despite capital expenditures of nearly $18 billion last year, slightly lower than the $20 billion in 2022, AT&T generated nearly $17 billion in free cash flow. Shareholders benefit from a 7% dividend yield, amounting to $1.11 per share annually, surpassing the S&P 500’s 1.4% payout. However, AT&T’s decision to end a 35-year streak of dividend increases in 2022 has raised concerns among some investors.
While the company has faced financial challenges and carries a total debt of $137 billion, its stock price has risen by approximately 25% since hitting a low in July. At a valuation of less than 7 times forward earnings, AT&T presents an opportunity for investors looking for a discounted stock with significant growth potential.
The Case for Verizon
Verizon reported 449,000 net additions in Q4 and boasts over 1.7 million broadband customers, placing it in close competition with AT&T in terms of wireless customer growth.
With a strong presence in the spectrum, which is valuable in the wireless business, Verizon is well-positioned to maintain its position in the market. However, heavy spending has contributed to the company’s total debt of nearly $151 billion.
Despite these financial obligations and $19 billion in capital spending last year, Verizon generated almost $19 billion in free cash flow. This enabled the company to fund over $11 billion in dividend costs. Shareholders currently enjoy a 6.3% dividend yield, amounting to $2.66 per share annually, which has steadily increased for 17 consecutive years.
Despite a modest rise in stock price over the past year, Verizon shows potential for recovery, driven by robust wireless customer growth and attractive valuation.
AT&T and Verizon exhibit many similarities, both experiencing notable growth in the mature wireless business and carrying substantial debt. Furthermore, the sustainability of their dividends remains uncertain as they seek to reduce these financial burdens.
However, AT&T may hold a slight advantage. Having already cut its dividend, the company is likely to face less backlash if it further reduces the payout to alleviate its debt. Additionally, with its higher market share and lower earnings multiple, AT&T presents a less risky option for potential investors.