Income-seeking investors want to turn their heads toward the telecommunications industry. Two members of America's three-way telecom oligopoly offer huge dividend yields above 6% at the moment.
Verizon (VZ +0.28%) and AT&T (T 0.40%) recently delivered first-quarter results that suggest their high-yield dividends are on steady ground. Both telecom giants are generating the profits they need to meet their dividend commitments, but which can raise their dividend the furthest over the long run?
The case for AT&T
Shares of AT&T offer an eye-popping 6.6% dividend yield at recent prices. Before getting too excited, though, you should know that the company slashed its payout in early 2022 and still doesn't know when it can start raising it again.
NYSE: T
Key Data Points
AT&T cut its dividend after spinning off unpredictable media assets. Now that it's strictly a telecommunications business, investors can look forward to more reliable earnings growth.
For years, AT&T has been losing heaps of wireline broadband internet customers to its competitors' fixed wireless services. This trend improved thanks to the launch of AT&T's own fixed wireless service in late 2023 and the continued success of its fiber optic internet service.
Instead of losing broadband subscribers as it did in 2023, AT&T reported 55,000 net broadband subscriber gains in the first quarter. That's more than it added in the previous six months combined.
AT&T is the second largest American telecom company by sales, but it's trending toward the top spot. In 2023, non-equipment mobility service revenue grew by 4.4%, which was better than Verizon and T-Mobile.
AT&T also suffers from less churn than its peers. In 11 of the past 13 quarters, AT&T subscribers discontinued their service at a lower rate than T-Mobile or Verizon.
The case for Verizon
Verizon offers a 6.7% dividend yield which is slightly better than you'd receive from AT&T at recent prices. The industry leader also has its largest rival beat when it comes to dividend growth consistency. Verizon made its 17th consecutive annual dividend payout raise last September.
NYSE: VZ
Key Data Points
Wireless service revenue gains in the first quarter weren't as strong as AT&T's, but they were close. Total wireless revenue rose 3.3% year over year thanks to higher prices that nearly all its customers absorbed. Verizon's churn rate isn't as low as AT&T's, but at just 0.89% among all postpaid customers during the first quarter, it's not bad.
Verizon launched its fixed wireless service more than five years ago with tremendous success. In the first quarter, Verizon reported 354,000 net new fixed wireless additions, plus 53,000 new subscribers with access to fiber optic cables.
The better buy?
AT&T doesn't have Verizon's 17-year dividend-raising track record, but it seems likely to provide more passive income over the long run.
Both Verizon and AT&T finished the first quarter with more than $120 billion in net debt, but they're not the same. More than 95% of AT&T's long-term debt is at fixed rates. With an average rate of just 4.2%, it significantly lowered its outstanding debt over the past two years and seems likely to maintain the momentum.
T Net Total Long Term Debt (Quarterly) data by YCharts
Verizon's debt is far more sensitive to interest rates. As a result, the company's overall interest expenses ballooned by about 83% over the past two years.
Now that 5G networks from AT&T and T-Mobile have mostly caught up, Verizon's industry-leading 5G coverage isn't the powerful advantage it used to be. Verizon reported first-quarter postpaid net additions that sank to 253,000 from 633,000 a year ago.
Verizon's broadband presence is strong, but it's showing signs of pressure from AT&T's fiber and fixed wireless services. The number of new broadband subscribers at Verizon fell 11% year over year to 389,000 in the first quarter.
Stronger competition could limit Verizon's growth for the next several years. Unfortunately, stubbornly strong inflation data suggests the Federal Reserve might not give Verizon a quick reprieve by cutting interest rates this year. Put it together, and AT&T looks like the better high-yield dividend stock to buy now.
