AT&T Inc. (NYSE:T)’s investors take those hefty dividend payments seriously. For years, the main reason for owning the telecommunications giant has been its generous dividend payments. More recently, investors have received an extra dose of rewards in the form of big share price gains in addition to regular income.
As a result, AT&T Inc. (NYSE:T)’s dividend yield has declined significantly, and the company is trading at a lofty valuation. Should investors continue to buy the stock? Or would you be wise to wait for a better price before jumping in?
The other industry titan
The telecommunications industry in the United States is essentially a duopoly, whereby two huge companies dominate the space. AT&T is one industry titan, and Verizon Communications Inc. (NYSE:VZ) is the other.
AT&T Inc. (NYSE:T) and Verizon are nearly identical companies, in terms of their product offerings as well as how their stocks trade. Both stocks hold extremely similar valuations and provide comparable dividend yields to shareholders.
However, it’s worth noting that Verizon Communications Inc. (NYSE:VZ) has outperformed its major rival in recent months. The company’s first-quarter consolidated earnings per share rose 15% year over year. In particular, the success of Verizon’s Wireless segment continues to impress: Verizon Wireless realized 8% year-over-year increases in both service revenues and retail service revenues, and achieved record operating and earnings before interest, taxes, depreciation, and amortization (EBITDA) margins.
It’s not as if AT&T is performing poorly, though. For its part, the company posted 12% higher quarterly diluted earnings per share year over year, and nearly $4 billion in free cash flow.
Not all telecoms are created equal
While investors might understandably assume that telecom stocks are one and the same, doing so would be a mistake.
For example, fellow telecom CenturyLink, Inc. (NYSE:CTL) was once one of the sector’s higher-yielding stocks, but investors received a rude awakening on February 14, when they found that their company had cut its dividend 25% amidst providing disappointing fourth-quarter and full-year results.