Telecom & Wireless

Telecom Dividend Hike War Continues With Verizon Chasing AT&T Yield

Jon C. Ogg

Published: September 1, 2016 2:09 pm

Last Updated: January 13, 2020 4:00 am

Investors love dividends. This is undeniable when you consider that one-third to half of total returns through time have come from dividends. The telecom sector offers even better dividend yields than utilities and tobacco stocks in a bull market that is now seven and a half years old. Investors have had to chase dividend stocks for years now that the Treasury yields are so low. Now we have a continuation in the dividend war between Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T).

With investors worried about the potentiality of a Federal Reserve rate hike coming sooner rather than later, the stocks paying the highest dividends have been debated more of late over valuations. The fear is that the dividends will not look as attractive to income investors if the 10-year Treasury note yield somehow manages to rise from 1.57% today to 2.50% or higher in the next year or so. That being said, the yield on the 10-year Treasury peaked right at about 3.00% at the end of 2013.

Verizon has now struck the latest blow in the dividend duopoly of high dividends in the major telecom stocks. Thursday brought news that Verizon has increased its quarterly dividend to $0.5775 per common share. This is the tenth consecutive annual dividend hike, and is a 2.2% (or $0.0125) per share hike from the prior quarter’s payout.

Verizon was quick to point out that this dividend hike actually increases its dividend by five cents per share on an annual basis, from $2.26 to $2.31 per share. Chairman and CEO Lowell McAdam said:

Verizon’s dividend policy reflects the company’s continued commitment to create sustainable shareholder value.

With approximately 4.1 billion shares of common stock outstanding, this means that Verizon’s cash dividend payment will be more than $2.367 billion, without considering any future dividend changes.

What matters here is that this Verizon dividend hike was ahead of the normal December hike from rival AT&T. That last dividend hike was from $0.47 to $0.48 in December of 2015. That was actually AT&T’s 32nd consecutive annual dividend hike.

AT&T’s dividend yield is currently 4.66%. It is expected that AT&T will again hike its dividend later in 2016. In fact, Thomson Reuters lists its consensus dividend projections to rise from $1.93 per year/share in 2016 to $2.01 per year/share in 2018.

Verizon’s prior dividend yield was listed as 4.30% before the hike, but the new yield is now going to be 4.39% for shareholders who own the stock at the current share price. Thomson Reuters sees the annual dividend per share rising to $2.34 in 2017 and $2.41 in 2018.

AT&T shares were last seen up three cents at $40.91, in a 52-week trading range of $31.85 to $43.89. AT&T’s consensus analyst price target is $42.84.

Verizon’s shares were last seen trading up 24 cents at $52.57, in a 52-week range of $42.20 to $56.95. Its consensus price target is $54.17.