The telecommunications industry is undergoing some big shifts. Declines for wireline telephone service and cable television subscriptions are happening at the same time that mobile wireless is becoming increasingly widespread and potentially revolutionary 5G network technology is hitting the market.

Which trends telecom companies are most exposed to has tended to be a defining factor in their performance, and this dynamic is clearly evident when examining Verizon Communications (NYSE:VZ) and Frontier Communications (NASDAQ:FTR)

Verizon has benefited from industry trends and looks poised to enjoy continued tailwinds. On the other hand, Frontier has been crushed by declines for its core competencies. Verizon clearly looks like the better business, but is it also the better stock? 

A collection of images of people using tech devices and conducting business against the backdrop of a city landscape.

Image source: Getty Images.

Speculative value versus safe growth potential

Even an investment in a great business can go on to be a loser if the price is too high. Verizon trades at roughly 12.5 times this year's expected earnings. Meanwhile, Frontier is currently posting steep losses, but it's valued at less than a hundredth of its expected sales for the year. 

Frontier is trading at just a small fraction of its expected revenue for the current fiscal year and may entice some risk-tolerant investors scouring for deep-value plays, but the problems facing the business are clear. It posted a net loss of $345 million in the third quarter, and the company has posted a net loss of roughly $6 billion over the trailing 12-month period. It hasn't been able to offset declines for cable subscriptions with its broadband business, and Frontier's high-speed internet business shed 76,000 subscriptions in the third quarter.

It is possible that a third party could step in and offer an acquisition bid for the company (or some of its assets) that would result in a dramatic rise in the telecom's share price. But investors who aren't willing to bet on a buyout will probably arrive at a less optimistic outlook for the stock.

With the company's primary business hitched to linear cable, Frontier has little in the way of apparent growth opportunities. With the company valued at roughly $66 million based on its current stock price, the telecom's outstanding debt load of roughly $17 billion looks absolutely massive.

Verizon is thriving by comparison. The company generated roughly $17.46 billion in free cash flow across the trailing 12-month period (working out to free cash flow per share of roughly $4.18), it operates America's leading mobile wireless network, and it stands out as one of the most likely beneficiaries of the rollout of 5G network technology. Frontier trades at a very low price-to-sales multiple, but Verizon's dependable earnings and strong business mean that it presents better value for all but the most speculative of investors. 

A clearly superior returned-income component

When it comes to dividend payments, this is another area where Verizon has an obvious advantage. Frontier suspended its dividend in 2018, while Verizon continues to offer a big yield and a relatively impressive history of payout growth.

Verizon has now boosted its annual payout for 14 years straight, its stock offers a yield of roughly 4%, and the company looks to be in good shape to continue delivering payout growth.

Frontier's massive debt load, mounting losses, and weak business outlook mean that it's very unlikely that the telecom will return to paying a dividend anytime soon. Frontier may sell more of its operations to raise cash and pay down debt, but these moves probably won't do much to offset the company's declining subscriber base or remedy its cash flow problems. 

Frontier is a gamble, Verizon is an investment

Finding smart, contrarian value plays can be hugely rewarding, but this is a case where it's better not to overthink it. Frontier trades at a basement-level price-to-sales multiple, but the weakness of its business and a huge debt load mean that investors should probably avoid the company. 

By contrast, Verizon stands out as a strong conventional investment. It's generating ample free cash flow, it has a leading position in mobile wireless, and there are big growth opportunities in the rollout of 5G network technology. Verizon also has a great dividend package.

Frontier Communications stock looks like a scratch-off lottery ticket at this point. It's possible that the shares could give you five times your money back, but the odds aren't in your favor. Verizon clearly stands out as the better buy.