We find ourselves at opposite ends of the telco universe this time, pitting wireless darling Verizon (VZ -0.03%) against out-of-favor telecommunications provider CenturyLink (LUMN -1.54%). Verizon stock is within 8% of hitting another fresh high, but CenturyLink shares hit their lowest level since the mid-1990s last week.
Verizon is betting on taking a leadership role in this year's 5G rollout, hoping to cash in on high-end customers willing to pay up for speedier smartphone connections. CenturyLink has turned to acquisitions to beef up results, but investors are naturally seeing through the stunt. Neither stock is perfect, but let's size them up to see which one is the better fit for your portfolio right now.
Nothing seems to be going right for CenturyLink. The provider of residential and enterprise communications services saw its pro forma revenue slide almost 4% in its most recent quarterly, and it scared away income investors when it slashed its dividend by more than half in February. CenturyLink also took a hit last month after announcing that it would be late in filing its annual report, though it did comply with the Securities and Exchange Commission by submitting the 10-K a week later.
Revenue at CenturyLink declined slightly for four consecutive years until its 2017 acquisition of Level 3 Communications helped temporarily boost reported results. Pro forma financials continue to show declines in its organic business, and all six of its segments posted reductions in revenue for all of 2018. Wall Street sees organic revenue continuing to slide through at least the next three years.
CenturyLink's CEO and CFO both bought chunks of the stock last month, but the rest of the market isn't following suit. The silver lining here is that CenturyLink's payout ratio is finally below 100% of its earnings, and the current 8.6% yield isn't too shabby if you didn't know that February's dividend cut isn't going to be a one-time event if business keeps going the wrong way.
Winning by default
Verizon isn't exactly a speed demon. Revenue rose all of 1.1% to $32.1 billion in this year's first quarter as strength at its wireless and Fios internet segment helped lift declines for the rest of its wireline businesses.
Even in wireless -- where Verizon is feverishly battling AT&T (T 0.64%) for supremacy -- revenue climbed a mere 3.7% in its latest quarter. Verizon is signing up deals for wearables and smartphones, but it's also losing tablet and nonsmartphone accounts. Like other TV platforms, Verizon's Fios is also shrinking.
However, Verizon is the better bet -- warts and all. Its 4.2% yield may be less than half of CenturyLink's payouts, but it's sustainable for the long haul. Verizon growth is slow and expected to continue at a meager pace, but it's still positive. Verizon wins this contest, and it will continue to be the case until CenturyLink makes a winning connection.