Telecom & Wireless

Verizon and AT&T: Perfect Stocks as Market Runs Higher

Douglas A. McIntyre

Published: July 15, 2016 7:55 am

Last Updated: January 13, 2020 5:42 am

AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) are not flash companies in the world of high tech, but they have been perfect investments as the market has rallied. For example, Verizon is the best performing component of the Dow Jones Industrial Average this year, up 20.8% to $55.63, while the Dow has risen 6.2% to 18,506. The stocks have the power of stock prices married with extraordinary yields.

AT&T’s shares actually have done somewhat better than Verizon’s this year, advancing 24.3%. By contrast, Amazon.com Inc. (NASDAQ: AMZN) has posted an increase of only 9.7% to $741. No one would argue with the e-commerce company as one of the great growth stocks of the past decade.

What AT&T and Verizon have is hard to match. Each has a huge footprint in both the wireless and fiber to the home markets. Each has a yield hard to find in a period in which government bonds pay little more than 1% for a one-year note. Verizon’s yield is 4.4% and AT&T’s is 4.5%.

Verizon had 141 million wireless customers in the first quarter. AT&T had 130 million. Third place T-Mobile US Inc. (NASDAQ: TMUS) sits very far behind at 66 million. The two larger companies have billions of dollars to build out their networks. T-Mobile must rely on parent Deutsche Telekom for capital.

AT&T and Verizon have two other businesses, one mundane and the other at the heart of video, telecom and broadband to the home. The ancient landline businesses, although shrinking, throw off cash. But the fiber business puts them in competition with huge cable companies like Comcast Corp. (NASDAQ: CMCSA) and satellite company Dish Network Corp. (NASDAQ: DISH). AT&T has its own satellite operation in DirecTV.

If there is any red-hot tech segment, it is the delivery of broadband and the chance to be the conduit for new streaming video services like those from Apple Inc. (NASDAQ: AAPL) and Amazon. There is evidence that these services will grow for years as people turn away from traditional cable services.

AT&T and Verizon may be growth stocks after all.