Dividend Watch: AT&T vs. Verizon (T, VZ, AAPL)

The two telecom giants of AT&T, Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) are both Dow Jones Industrial Average members.  They are both considered to be very defensive stocks in nature.  They are both also very boring when it comes to watching stock volatility.  Regardless, these two offer some of the biggest and best dividend yields of any sector out there and we all know how much investors love their dividends.

We often review peers in dividend trends.  We look for payout ratios and dividend coverage, as well as trends that may be impacting the companies and their respective sectors.  Generally, the aim is to define which of a peer group has the safest or best dividend.

AT&T, Inc. (NYSE: T) is in the middle of trying to acquire T-Mobile and it has recently lost its iPhone exclusivity with Apple Inc. (NASDAQ: AAPL).  This may chew up its dividend growth dollars in the future, but the company will not likely be cutting its dividend to fund this acquisition.  AT&T has been paying a $0.43 payout for two quarters in a row now, which comes to $1.72 per year.  With shares at $31.50, this comes to a dividend yield of roughly 5.45%.  AT&T’s 52-week range is $23.78 to $31.94 and that puts the stock down only about 1.3% from its highs.

Verizon Communications Inc. (NYSE: VZ) has recently begun the launch of its iPhone now that Apple Inc. (NASDAQ: AAPL) has decided it is better to adopt a dual-supplier model in most major markets.  It has paid out a $0.4875 per quarter dividend for three quarters in a row now.  This comes to $1.95 per year, and with a share price of $37.25 that generates a dividend yield of almost 5.25%.  Verizon’s 52-week range is $25.99 to $38.95 and that puts the stock down about 4.3% from its highs.

The biggest trick is determining who can pay their high dividends the easiest.  AT&T’s $1.72 annualized payout compares to Thomson Reuters estimates of $2.36 EPS in 2011, so it pays out almost 73% of its adjusted earnings expectations as dividends.  Verizon’s $1.95 annualized payout comes to Thomson Reuters estimates of $2.22 EPS in 2011, so it is currently paying out almost 88% of its expected adjusted income estimates as dividends.

AT&T’s acquisition of T-Mobile may change everything out there on all of the ratios if the deal is approved.  Right now that is an issue still up in the air as to whether or not it will be allowed.

The real difference between AT&T and Verizon dividend comparisons usually depends upon which stock has performed the best and the worst.  Both have increased payouts through time for years and years.  For now it is AT&T that leads in dividend yields, share support from 52-week highs, a lower payout ratio that imply more room for dividend hikes ahead, and more.  It turns out that Verizon has seen new iPhone subscribers, but it also turns out that all of those AT&T defections did not take place at quite the same pace as many feared.

Dividend investors are more likely to flock to AT&T today, but again it only takes price changes in the underlying shares for that to change.

JON C. OGG