The race to 5G is heating up as the economy cools off, and two companies are invested heavily in our next generation of data infrastructure. But they’ve been around since 0G.
At one time, AT&T was known as Ma Bell (due to its connection to Alexander Graham Bell’s initial phone company), and an antitrust suit broke it into regional bell companies, known colloquially as the Baby Bells.
Each of the seven original Baby Bells eventually merged into AT&T and Verizon, with CenturyLink standing on its own in competition to both for broadband internet.
But it’s not the only competition, as T-Mobile’s wireless network (which also includes Sprint) competes for broadband spectrum in its 5G bid. However, both Verizon and AT&T are more than carriers – they’re multimedia content ecosystems.
It’s time to analyze Verizon stock vs AT&T to determine which is the better value for the 5G wars that will define the 2020s.
Is Verizon Dividend Enough To Buy The Stock?
After splitting from Ma Bell, Bell Atlantic acquired NYNEX and GTE Corporation to form Verizon, which translates to, “truth on the horizon.”
The company also acquired MCI in 2005, while its Verizon Wireless subsidiary became the leading wireless carrier in the U.S. In addition to its transition to cable TV, broadband and wireless communications, Verizon Media consists of its AOL and Yahoo! assets, which were renamed Oath before being branded in the Verizon family.
Verizon’s market cap entering the fourth quarter was over $240 billion, and the company is paying a 4.2 percent dividend.
Its annual revenue for the trailing 12-month period was $130 billion, which gave the company $19.15 billion in profits.
Based on Verizon’s previous success in snagging exclusive devices and content for its customers, it’s going to be a major player in the 5G wars.
It may not have much growth potential, but its lower pricing in 2020 could be a discount if its subscription services pay off.
This is a great investment with long-term growth and dividend payments, even if it’s not likely to experience the triple-digit growth of smaller companies.
Is AT&T Stock Trading At 9x Earnings A Buy?
AT&T kept the name of the Ma Bell giant and eventually merged with BellSouth, Ameritech, Pacific Telesis, and Southwestern Bell Corp to form AT&T Inc.
Besides growing to also offer broadband and wireless services, it also bought Time Warner for $85 billion in 2018.
This gave the S&P 500 component a broad range of brands from CNN to Warner Bros, the DC Universe, and HBO Max.
The coronavirus shutdowns really hit production schedules, but digital subscriber revenue is seeing growth for premium video streaming services.
HBO itself accounts for over $1.5 billion a year in revenue for the company. Its declining stock values could represent a great discount for those looking to generate recurring revenue off its healthy 6.9 percent dividend payment.
AT&T’s market cap heading into the fourth quarter of 2020 was over $215 billion, and that yielded only $11.9 billion profit.
That meant it’s trading at nearly nine times its earnings, and it has a lot of exposure to businesses that are suffering, particularly live events, which AT&T often sponsors. In fact, let’s look at risks of investing in either company.
Risks Of Verizon Stock
The biggest risk to Verizon is its exposure in the consumer wireless sector. When rent, food, and other bills are due, phone bills often get paid last.
This hasn’t been a problem in 2020 because of government stimulus bills. Aside from the $1200 stimulus checks, there were forgivable PPP loans and pandemic unemployment programs, along with federal and state foreclosure and eviction moratoriums. As soon as this runs out on December 31, 2020, the floodgates open.
It’s unclear if Verizon can continue its dividend payments in 2021 amid consumer debt write offs while brands like HuffPost continue to struggle for advertisers in a shrinking economy. It could find itself running out of money if it’s not careful.
Dangers Of Buying AT&T
AT&T’s biggest risk is that the stock price won’t grow as much as you’d expect. It’s likely going to pull your portfolio down in the short term.
However, it’s paying a healthy dividend, and there’s a good chance HBO Max subscriptions will give it a boost that Disney’s streaming services do. However, HBO and its other offerings are competing with Netflix, Disney, and Apple on a lot of expensive fronts.
Still, AT&T’s dividend payments are sure to remain as consistent as they have since the first days of the telephone.
The company has key partnerships that will help it lead the way in digital entertainment and access during the slow economic recovery ahead.
AT&T Vs Verizon Stock: The Bottom Line
AT&T and Verizon are telecom giants that basically hold an oligopoly on U.S. wired and wireless services. Not only do they control the data lines and airwaves, but they also have stakes in the media and entertainment content we consume through them. Information never dies, and that gives both companies deep caches of money to spend on the upgrade to 5G.
The next few years will likely be rough, and both companies are expected to take some hits along the way. Consumers are going to inevitably default on wireless payments when government assistance programs run dry in 2021. Each utility is unlikely to experience rapid growth, but they’ll almost certainly maintain for those looking for dividend payments.
Verizon’s dividend is more likely to take a hit, however, as it has the bigger exposure to consumer wireless. AT&T is the safer bet of the two for stable profits throughout the 20s.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.