AT&T And Verizon Have Seen Their Dividend Yields Soar; How Do They Compare?

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Large cap telecom stocks such as AT&T (NYSE:T) and Verizon (NYSE:VZ) have always found favor with yield-seeking investors, given that they are defensive bets with predictable cash flows. Moreover, their sizable wireless infrastructure gives them a relatively wide economic moat. Both stocks have seen their prices decline by roughly 8% over the last quarter, pushing dividend yields upwards amid concerns of a higher-interest rate environment, which prompts investors to move money towards the bond market. AT&T’s dividend yield currently stands at about 5.2%, while Verizon’s yield stands at about 4.8%. In comparison, the S&P 500 offers an average dividend yield of about 2%.

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How Verizon And AT&T Compare

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While AT&T offers a higher dividend yield compared to Verizon, its dividend growth rate over the last five years has been lower. Moreover, AT&T’s higher dividend is driven by a higher payout ratio (81% over the last four quarters, vs. 65% for Verizon). This implies that Verizon’s dividend has a lower risk of being reduced (better coverage), with better scope for growth, as the firm has more funds to reinvest. Verizon also has a more loyal postpaid wireless phone subscriber base, with churn levels remaining at roughly 1%, allowing for more stable revenues. That said, AT&T has a longer history of raising its dividends, with 33 years of consecutive growth compared to Verizon’s 12 years of growth. AT&T raised dividends by 2.1% this October to $0.49 per share, while Verizon raised its dividend by 2.2% to $0.58 per share.

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