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AT&T vs. Verizon: Which One Looks Like a Better Buy?

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When thinking of dividend payers, many stocks come to mind. However, two that unquestionably come to the front of many minds are AT&T (T - Free Report) and Verizon Communications (VZ - Free Report) .

Both stocks reside in the Zacks Wireless National Industry, which is currently ranked in the top 36% of all Zacks Industries.

Studies have shown that 50% of a stock's price movement can be attributed to the group it’s in, making it crucial to ensure that investors target stocks in a thriving industry.

In fact, the top 50% of Zacks Ranked Industries outperform the bottom 50% by a factor of more than two to one.

With both being titans residing in the same industry that’s highly ranked, it raises a valid question – which company looks like a better investment for income-focused investors?

Let’s take a closer look.

Price Action

To better understand which stock investors have defended at a higher level, we can look at each company’s share performance across several timeframes.

Year-to-date, VZ shares are down more than 20%, widely underperforming AT&T’s decline of 11%.

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Image Source: Zacks Investment Research

And over the last year, the story has remained the same – Verizon Communications’ decline of nearly 25% widely lags AT&T’s 18.3% decline.

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Image Source: Zacks Investment Research

Clearly, market participants have favored T shares.

Quarterly Performance

Now, we can look at each company’s quarterly performance to see how business has fared.

AT&T has a strong earnings track record, exceeding the Zacks Consensus EPS Estimate in seven of its last ten quarters. Top-line results have also been strong, with T registering six revenue beats over its previous ten quarters.

However, VZ has a slightly stronger earnings track record, with eight EPS and revenue beats over its last ten quarters.

While T shares have been more powerful, VZ has a slightly stronger earnings track record.

Valuation

Both companies’ shares trade at rock-solid valuation levels, with their forward earnings multiples nowhere near their five-year medians. Further, each company carries a Style Score of an A for Value.

Still, AT&T’s 6.4X forward P/E ratio is slightly cheaper than Verizon’s 7.7X.

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Image Source: Zacks Investment Research

While T shares are cheaper, it’s worth noting that both companies’ shares are trading at relatively low multiples.

Dividends

Perhaps the biggest perk of AT&T and Verizon shares is their hefty annual dividend yields, as seen in the chart below.

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Image Source: Zacks Investment Research

At first glance, AT&T looks like the sure winner here, with its 6.8% annual dividend yield edging out Verizon’s 6.4% annual dividend yield.

However, Verizon has upped its dividend payout six times over the last five years, whereas AT&T has upped its dividend payout four times in the same period.

In addition, VZ’s 2.1% five-year annualized dividend growth rate easily edges out AT&T’s value of -2.3%.

While T’s annual dividend yield is slightly higher, VZ’s dividend growth metrics make it the clear-cut winner.

Growth Estimates

Of course, growth projections are a major deciding factor in selecting stocks.

For Verizon’s current fiscal year, earnings are expected to decline by 3.7%. However, the earnings picture kicks back into green in FY23, with the bottom line forecasted to tack on 2.4%.

Further, VZ’s top line is in decent shape; revenue is forecasted to climb 2% in FY22 and a further 1.5% in FY23.

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Image Source: Zacks Investment Research

Pivoting to AT&T, earnings are forecasted to decline by 26% in FY22. And in FY23, the company’s earnings are forecasted to slip a further 1.7%.

Revenue is projected to drop 25% in FY22 and an additional 3.2% in FY23.

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Image Source: Zacks Investment Research

Verizon carries a much stronger growth profile.

Bottom Line

While it’s undoubtedly hard to choose between these two wireless titans, both have advantages and disadvantages.

AT&T (T - Free Report) shares have performed at a much higher level and are currently cheaper.

However, Verizon Communications (VZ - Free Report) has a stronger earnings track record, more robust dividend metrics, and notably better growth projections.

Still, both companies have displayed remarkable relative strength in 2022 and pay investors handsomely, undoubtedly perks that all market participants seek.


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