In today’s low-interest-rate environment, dividend investing is all the rage, and perhaps no sector is more renowned with showering its shareholders with cold, hard cash than the telecom sector. Known for its long history of high yields, it’s important to note that not all dividend stocks in the sector are created equal -- some, in fact, can carry some very serious risks. However, if we look to the upper echelon of the telecom’s dividend elite, we'll see what makes AT&T (NYSE:T), Verizon Communications (NYSE:VZ), and one forthcoming industry entrant represent the top dividend stocks among wireless providers.
I consistently sing AT&T’s praises as an income investment, and deservedly so. The company’s potent mix of current yield, historical track record, and long-term growth potential are without equal in the sector. Let’s quickly run through each of these topics.
In terms of current yield, AT&T shares currently yield an impressive 5.0%. For comparison, the S&P 500 benchmark yields 1.9%, making AT&T’s cash payments 160% greater than the market average for those scoring at home. AT&T isn’t alone in this advantage among companies on this list, but this is a noteworthy data point working in its favor.
More compelling still, AT&T’s track record of dividend growth is what truly separates it from the pack. The company has increased its dividends per share each year for the past 32 years, and it already did so again in the first quarter of 2017. Better still, this long-time trend appears to be a lock to continue, given AT&T’s recent strategic machinations.
Late last year, AT&T reached a deal to acquire Time Warner (NYSE:TWX.DL), a deal I continue to laud. The deal addresses both defensive and offensive strategic needs for the two companies.
In AT&T, Time Warner finds a home and access point to consumer data that should help place it on a more equal footing compared to new media rivals Alphabet, Facebook, and Amazon. The deal should also allow AT&T to move into the cable business by eventually launching an over-the-top cable service that flows over its nationwide wireless network directly to consumers’ mobile devices.
Though I remain more bullish on AT&T, Verizon also deserves investors’ attention for several reasons. The first point -- as was the case with AT&T -- is Verizon’s impressive dividend yield, which also sits at 5.0% today. The telecom giant produces substantially more income on a dollar-for-dollar basis than the market average, making it an interesting option for investors in or near retirement.
That being said, Verizon lacks AT&T’s long-standing commitment to growing its dividend. Granted, Verizon shares have only been trading since 2000 -- before then, it traded under the name Bell Atlantic. Either way, the company de-emphasized dividend growth during the early-to-mid 2000s. It raised its per-share cash payouts only once from 2000 to 2006, excluding a one-time special dividend in 2000.
However, the company appears to have recommitted since then, increasing its annual dividends every year from 2007 through 2016. Crucially though, the company lacks AT&T’s long-time track record of steady dividend increases, which earns it a ding in terms of relative attractiveness to its main telecom rival.
Finally, Verizon also lacks AT&T’s broadcast assets. The company has spent heavily to acquire mobile short-form media assets via recent buyouts for AOL and Yahoo. This should help bolster the company’s average revenue per user (ARPU) to a certain degree. However, this strikes me as a more marginal growth story than AT&T’s full-throttle push into mobile cable.
The wildcard: Comcast
I have covered this topic in greater detail in the past, but cable giant Comcast (NASDAQ:CMCSA) deserves at least a partial mention here, given its stated plans to launch its own wireless service at some point this year. Assuming the company will eventually enter this space, it follows that Comcast should also earn the attention of income investors interested in the sector for two reasons.
First, Comcast will be the only company in the media or wireless industries not named AT&T to combine cable, wireless, and content production assets under one roof. Like AT&T, Comcast will likely use this offering to bundle cellular, mobile cable, internet, and other services into competitively priced bundles. This should allow Comcast to effectively compete against mobile subscribers from the likes of Verizon, Sprint, and T-Mobile for subscribers; some might argue such a competitive dynamic could favor Comcast.
Second, Comcast shows some promise as an income stock, as well. Compared to the likes of AT&T and Verizon, Comcast shares yield an admittedly paltry 1.4%. Moreover, the length of its track record isn’t as extensive as one might hope. The company only began paying a dividend in 2008, but it has increased its annual dividends per share every year since. Considering the favorable competitive dynamics that a mobile cable offering could yield, Comcast deserves mentioning as an interesting dark-horse candidate among dividend stocks in the wireless space.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Verizon Communications. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.