- Verizon and AT&T, the two main U.S. carriers offer steadily rising dividends and attractive yields.
- The emphasis is on minimal risk and income to shareholders.
- When stocks get volatile these represent shelter in the storm.
They represent a good shelter in economic storms.
This is because both companies are primarily cell phone carriers, not only cell phone carriers but dominant ones. They also own key Internet infrastructure, the long-distance fiber that connects Internet Service Providers to one another. They are managed very conservatively, and the focus is on dividends, so you are going to get a return.
AT&T, for instance, has kept its dividend on a slow, steady rise for years, regardless of short-term changes in earnings. Shareholders who got in five years ago, when the price was about $29, now enjoy a yield of about 6.4% on their money, based on the current dividend of $1.88/share. They have not, however, gotten much of a capital gain, with the stock closing at $33.95 on January 11.
Even during the 2008 economic crisis, AT&T kept bravely on. The share price was cut in half but the dividend, then 41 cents/share, was maintained throughout. If you bought near the bottom, at about $22, you’re getting almost 10% on your money now, compared with a U.S. 10-year bond rate of about 2.2%.
The story of Verizon stock has been similar. The annual dividend is up from $1.98 per share in 2012 to the current annual rate of $2.24/share. Earnings have been volatile – the company even reported a loss during the December quarter of 2014. But the dividend policy has remained in place. The stock, meanwhile, has gone up only from $35 to its present price of $45.09.
These are companies that don’t take risks. The $130 billion purchase of the Vodafone (NASDAQ:VOD) stake in 2014 was not seen as a risk, but a consolidation of assets. The deal raised the company’s debt load from about 25% of assets to about 50%, which is double that of AT&T, and as a result, Verizon has been less aggressive about extending its wired fiber network, dubbed FiOS, to customers than AT&T.
Verizon has also sought some differentiation by buying AOL in a $4.4 billion deal that gives it an Internet ad network and some small play in content through sites like Huffington Post, TechCrunch and Engadget. But on a market cap of $185 billion this move is not material. It is highly defensive in nature.
If I were to suggest you to buy one of these two stocks at their current levels, based on the criteria the two companies have set for themselves as investments, I would go with AT&T for the higher yield and lower risk profile. Dividends are what I want on stocks like these, and AT&T’s current yield of 5.73% is more attractive than Verizon’s yield of 4.99%.
But these are not stocks you trade. They are stocks you buy, you hold, and you retire on. When markets are volatile they represent safety, since the dividends are covered by earnings that are as reliable as any other Wall Street earnings can be.