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These Telecoms' Dividends Are Too Big to Ignore

By Travis Hoium – Feb 27, 2014 at 3:30PM

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Dow Jones Industrial Average powers AT&T and Verizon have such high dividends that investors should consider adding them to their portfolios.

The Dow Jones Industrial Average (^DJI -0.90%) can often be a sleepy place for investors to look for stocks. The blue chips that fill the index are often highly diversified, meaning that one news item won't cause ripples in the market like it will with smaller companies that fill the Nasdaq Composite or the S&P 500.

What the Dow can't offer in excitement, it can make up for with profit-making dividends that pay investors simply for owning a company's stock. Two of the best dividends on the Dow now come from companies you probably know well: AT&T (T -0.16%) and Verizon (VZ 0.81%).

AT&T recently upped its quarterly dividend to $0.46, giving it a 5.6% yield for investors. The consistency with which AT&T has grown revenue is impressive, and its virtual duopoly with Verizon Wireless in cellular telephones gives it incredible pricing power with customers.

T Revenue (TTM) Chart

T Revenue (TTM) data by YCharts.

Verizon's industry leading LTE network in the U.S. give it even more pricing power and has kept its payout to investors climbing. The stock's 4.6% yield isn't as high as AT&T, but I'd argue that there's more growth potential now that it owns all of cash cow Verizon Wireless.

Telecom is a long-term dream for investors
Investors shouldn't ignore these two telecom stock that are deeply ingrained in U.S. daily life. While cell phone, app, search engine, and social media companies may come and go quickly, the cell towers that carry data to our mobile devices are in higher demand today than they've ever been.

AT&T and Verizon have such large networks that as hard as Sprint and T-Mobile try they can't catch up to the fast service that customers demand. That leaves smaller carriers to compete on price, which lowers margins and reduces the ability to build out cell networks over the long term.

It's a vicious cycle that works against small cell companies but bodes well for the cash flow for AT&T and Verizon. These are high-yielding stocks today and I don't see anything but growth for these two Dow Jones Industrial Average powers in the future.

Travis Hoium manages an account that owns shares of AT&T and Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,476.46 (-0.90%) $-305.02
Verizon Communications Stock Quote
Verizon Communications
$37.40 (0.81%) $0.30
AT&T Stock Quote
$19.09 (-0.16%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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