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.
However, AT&T isn’t growing revenue as fast as its major competitor. Since 2008, AT&T has grown revenue by less than 1% compounded annually.
AT&T does reward shareholders with its free cash flow generation, though. The company has increased its shareholder payout for 29 years in a row.
One domestic telecom worth avoiding, however, is CenturyLink, Inc. (NYSE:CTL). In February, investors were given a rude awakening when they found their company had cut its dividend 25% amidst providing its fourth-quarter and full-year results.
The company has continued to provide uninspiring results in recent periods. In its most recent fiscal quarter, CenturyLink saw revenues drop 2% year over year.
Telecom stocks are bought primarily for their dividends. It’s true that CenturyLink will use the savings to pay down debt and invest in its business, which are good things, but investors shouldn’t stick with a telecom that cuts its dividend.
Causes for concern
Rising interest rates supposedly make dividend stocks less attractive. Indeed, the 10-Year Treasury Bond has sold off considerably in recent weeks, with its yield climbing all the way to 2.43%. Dividend stocks such as Verizon and AT&T have sold off in tandem with the uptick in rates.
I don’t consider dividend stocks to be truly less valuable, even if interest rates rise. The company’s dividend yield is still several hundred basis points better than Treasuries. Moreover, Verizon Communications Inc. (NYSE:VZ) produces solid free cash flow and has actually raised its dividend regularly over the past several years.
That being said, investors should expect continued near-term volatility. The market has clearly not appreciated recent statements by the Federal Reserve, and if the market continues to drop significantly, Verizon and AT&T will likely not go unscathed.
That being said, if Verizon’s dividend yield exceeds 5% once again—which would occur at a price of $41 per share—I’d consider it to be a welcome buying opportunity.
The article Should You Buy Verizon? originally appeared on Fool.com.
Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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