We bring another Dividend Stock Showdown to you! After all, we are always on the hunt for a great undervalued dividend growth stock to add to your dividend stock portfolio. We compare two giants in the telecom stock sector against each other to determine which company is a better fit for your portfolio today. The two companies in our analysis are: AT&T (T) and Verizon (VZ). What is the better stock to buy? Do you gobble up AT&T stock or do you go with big red and Verizon stock? The match must begin!
Telecom stocks are in our everyday lives. You constantly use your cell phone, you are eager for the 5G networks to roll out, and the two largest wireless providers in the U.S. are AT&T and Verizon. AT&T, though, offers more than just telecommunications – it offers an entertainment package as well. Does that make AT&T a better pick over Verizon?
Both are dividend monsters. AT&T stock price is currently trading at historic lows and offering up significant valuation. In addition, it is a Dividend Aristocrat. However, we can’t leave Big Red behind, as Verizon has increased its dividend recently and is also a leader in 5G technology.
We run both stocks through the Dividend Diplomat Stock Screener and see if they are worth a spot in your dividend stock watch list and/or stock portfolio. We review the price to earnings ratio, payout ratio, dividend growth history & rate, as well as dividend yield, the bonus stock metric.
1.) Price-to-Earnings Ratio (P/E Ratio) – The price-to-earnings ratio assesses a company’s valuation. We can compare this to the stock market, on average, and against the competition. The S&P 500 is currently trading at a P/E Ratio of 35x yearnings. AT&T stock wins the P/E battle with just under 9x forward, and Verizon stock is trading at 11.7x forward earnings.
2.) Dividend Payout Ratio – This metric measures the safety of the dividend. Typically, we look for a dividend payout ratio less than 60%, and a perfect dividend payout ratio is between 40% and 60%. Verizon stock actually wins this battle, as the company’s dividend payout ratio is at 51%, right in the perfect dividend payout ratio range! AT&T stock has a dividend payout ratio at ~65% currently. The company has been there traditionally, as of recent years, but the CEO is committed that the free cash flow is fully sufficient for its dividend. Let’s hope.
3.) Dividend History and Dividend Growth Rate – AT&T stock wins this battle over Verizon, as it is a Dividend Aristocrat with well over 25+ consecutive years of dividend increases. In addition, Verizon is not too shabby. However, Verizon is going on just 15 years of dividend growth. Here’s the funny part – they both have an average dividend growth rate of approximately 2%.
4.) Bonus Metric: Dividend Yield – The bonus metric of our dividend stock screener. Both really win this. First, AT&T stock has a yield creeping towards 8% – yikes, so high! We usually don’t say that’s a good thing, due to not chasing for yield, but AT&T’s dividend appears safe. Verizon stock currently yields over 4.3%. Far superior than your high yield savings account of approximately 0.60%.
In the end, it’s obviously dependent upon your personal situation, dividend portfolio and if they fit with your basket of companies you own. These are two great dividend stocks, and I do not think you can go wrong, period. However, what is your pick? Do you buy AT&T or Verizon now? What is already in your portfolio?
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.