The telecommunications industry has time and again proven to be a key player helping revive the global economy. Telecom is a necessary utility and with the reviving economy the FCC has estimated that within the next five years, mobile-data demand will grow 25-50-fold from its current level. New service areas such as IPTV, collaboration and cloud computing, videoconferencing and mobile payments offer a wide range of opportunities for the telecom giants. Another strong point in favor of the telecom giants is the low-cost operators cannot compete with the giants because of scarcity of available spectrum. Investing in the industry leaders will surely help you in generating a stable income.
The telecom giant has been around seemingly forever and been generating returns that whole time. The stock has seen a growth curve since 2009 with a total increase of 56.28% since its low during the recession. Toss in an astonishing dividend yield of 5.10% and it beats alomst anything. With a market cap of $200 billion it is the second largest telecom provider in the U.S. The company recently reported a solid Q4 led by its wireline and wireless business (thanks to its blockbuster product U-Verse!). AT&T also sold a record breaking 10.2 million smartphones (the highest ever sold by any U.S. carrier); taking the total customer base to 47.1 million (16% of them were new).
AT&T’s acquired Verizon Communications Inc. (NYSE:VZ)’s B Block Spectrum Holding, which is complementary to AT&T’s existing 700 MHz B and C block holdings, enables AT&T to deploy a 10×10 MHz LTE-B and C combined network in 18 states. Additionally, it will add 42 million POP’s + AWS licenses in 5 markets. AT&T’s equity interest in America Movil SAB de CV (ADR) (NYSE:AMX) is also boosting the company to solidify its presence in the latin market. AT&T Mobility is looking forward to expand its 4G-LTE coverage to 300 million consumers by the end of 2014, and will give a tough fight to Verizon’s 4G-LTE coverage area.
Recently AT&T announced the purchase of Atlantic Tele-Network’s U.S. retail wireless business (585K subscribers) and its spectrum for $780 million. Seeing the declining growth in the wireless segment, I regard this deal as a positive move for the wireless assets running on cellular spectrum.
The company also repurchased 371 million shares, or about 6% of those outstanding, for $12.8 billion. Its Project Velocity IP LTE is also looking forward to cover more of the U.S. population by this year end. In terms of LTE, AT&T covers 150 million Americans, which is quite impressive. It pays an attractive 5.3% dividend yield, has a forward P/E of 13.2 and a net profit margin of 5.9%. Given AT&T’s healthy fundamentals, fair valuation level, and solid downside protection by the sustainable dividend yield, the stock deserves a buy rating.
Verizon Communications Inc. (NYSE:VZ)
Verizon is the largest telecom provider in the U.S. With approximately 100 million wireless subscribers, the company continues to benefit from a strong network and brand name, which could help spur more people to switch to Verizon. The company reported robust 4Q12 earnings with an 8.5% year over year rise in the wireless segment. Compared to the 780,000 postpaid additions of AT&T, Verizon added 2.1 million customers. At the end of 2012, Verizon had 92.5 million subscribers, compared to 70.5 million for AT&T, proving it is still ahead of AT&T in the wireless business. Verizon reported that 86.5% of all postpaid handsets sold in 4Q12 were smartphones v/s 70.3% in 4Q11.
The smartphone segment will continue to grow and contribute to the increase in operating expenses. The company also attracted its FiOS customers by giving them online access to its NFL network programming to enable them to watch their favorite football teams. Verizon is continuous in expanding its next-generation 100 gigabits-per-second network, allowing more network routes in the US and 2 additional routes in Europe. Verizon added 2.2 million retail net additions and 2.1 million of these were postpaid subscribers. By comparison, AT&T added 1.1 million new subs, and 780,000 were postpaid subscribers. It took Sprint Nextel Corporation (NYSE:S) nine months last year to add 942,000 subscribers.
Verizon’s dividend is also attractive. Currently investors receive 4.75% yield and the company’s EPS is expected to grow by roughly 7.5%. Verizon continues to be a U.S. powerhouse with strong growth potential, smart acquisition activity and increasing revenue.
Bottom Line
With the global Internet traffic expected to quadruple by 2015 and mobile broadband traffic increasing 35 times in five years, it is the best time to get into the sector. These dividend-paying stocks have the potential for both capital gains and income production. For the defensive investment player who wants to play safe, desires to have steady growth and dependable income, AT&T and Verizon are the top picks.
The article You Cannot Afford To Miss This Opportunity! originally appeared on Fool.com and is written by Kingshuk Dutta.
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