Google Inc (NASDAQ:GOOG) Fiber is offered in approximately a dozen cities nationwide, but it would be very costly for it to become a real threat to established telecommunications companies any time soon. It’s unrealistic to assume that Google Inc (NASDAQ:GOOG) will drop hundreds of billions of dollars in an attempt to take out AT&T and Verizon, especially when the search-giant makes almost all of its revenue from advertising.
U.S. telecommunications companies are largely domestic players, but could benefit in the future from international growth. It’s been rumored that AT&T wants to expand into Europe. Verizon rumors center around a 50/50 chance that it will enter into the Canadian market, according to Bloomberg. However, Verizon’s entry into Canada would also be costly. Moody’s estimated a cost of $3 billion just for the company to get up and running north of the border. The question is whether or not the new markets and growth are worth the price and effort.
AT&T is doing the opposite of Verizon and looking south of the border. The company owns a stake in America Movil S.A.B. de C.V., which gives it exposure to 18 lucrative and growing markets in the Americas, including Mexico. AT&T holds approximately 9% of the company, so this asset not only lets it benefit from emerging South American economies, but also allows it to sell shares if the stake gets too large. AT&T recently re-balanced its stake, making a cool $564 million in the process.
Expanding into Europe would give AT&T an escape route from saturated U.S. markets, but in the meantime, it will have to rely on its exposure to Mexico and South American growth markets.
The bottom line
AT&T is a steady stalwart that provides an increasing, high-yielding dividend, perfect for generating income. Growth may be slow, but when its 4G LTE network is complete, costs should go down and earnings should increase along with free cash flow. AT&T will continue to profit from the wireless revolution and is attractively valued. Besides offering a higher dividend than Verizon, AT&T is also cheaper in relation to earnings, trading at only 12.5 times forward earnings. Verizon carries a forward P/E of over 14.
The article Generate Income With This Telecom King originally appeared on Fool.com and is written by Joseph Harry.
Joseph Harry owns shares of AT&T. The Motley Fool has no position in any of the stocks mentioned.
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