Are High-Yielding AT&T And Verizon Worth Buying As Prices Skid?

Key Points

• AT&T and Verizon remain attractive to income investors with dividend yields of nearly 7.8%.
• AT&T's revenue has been growing slowly, despite 5G customer additions, while Verizon's revenue is slowing. 
• Use caution with high-yielding stocks whose share price is declining. 

Oh, how the mighty have fallen. Back in the days when people talked of so-called “blue chip” stocks, those that seemingly could do no wrong, America’s telecom stock was AT&T Inc. NYSE: T. 

But is AT&T, which no longer dominates the S&P 500 as it once did, still worth it as an investment, as the price has declined 17.07% in the past year? The same could be asked about Verizon Communications Inc. NYSE: VZ, whose shares are down 21.27% during that time

AT&T and Verizon don’t have nearly the influence over the S&P 500 they once did, as info techs’ market caps have propelled them into heavier index weightings. However, AT&T and Verizon continue to appeal to income investors, as each pays a dividend yield of nearly 7.8%. 

Meanwhile, fellow “big phone” T-Mobile US Inc. NASDAQ: TMUS, whose focus has always been primarily on the wireless market, does not pay a dividend and does not intend to in the foreseeable future, the company says. 

T-Mobile: No Plans For A Dividend

“We currently intend to use future earnings, if any, to invest in our business and for general corporate purposes, including the continued build-out of our 5G network, expansion of our business, the integration of T-Mobile’s and Sprint’s businesses, and share repurchases as appropriate,” it said in its most recent annual report, adding that capital appreciation of its stock would be the “sole source of potential gain.”

T-Mobile’s stock, too, has been declining, but at a much lower rate. The share price is down 5.53% in the past year.

Over the past five years, T-Mobile shares have notched a positive return, while AT&T and Verizon have trended gradually lower. 

A development that applies to all three stocks is the rollout of 5G technologies, but AT&T and Verizon have another problem: The Wall Street Journal recently reported that the two companies, legacies of the convoluted breakup of the old Bell system, are responsible for cables coated in toxic lead stretched throughout the U.S. 

Senator Ed Markey of Massachusetts wrote a letter to the US Telecom trade group asking for action on the removal of the cables.

Lead Cable Remediation Cost In The Billions

Concerns about lead remediation have been sending AT&T and Verizon shares lower recently, with some analysts saying the costs be in the range of $1 billion to $10 billion. However, both companies have the free cash flow to cover those expenses. With the cost estimates recently revised lower, it’s possible the toxic cable selloff has found a floor.

Meanwhile, AT&T, Verizon, and T-Mobile have all launched versions of 5G with enough coverage to claim they offer nationwide service.  

A recent report by Ookla, a company that specializes in Internet speed testing and performance measurement, found that the U.S. has the greatest 5G availability worldwide, although the speed of networks lags behind other countries. 

While 5G has been touted as a development that will drive revenue growth for AT&T, Verizon, and T-Mobile. The thinking is: These carriers can offer new services, attract more subscribers, and tap into industries like the Internet of Things and automation, which would expand the customer base.

Adding 5G Customers

Is that realistic? Maybe or maybe not. Verizon recently added 384,000 5G customers, raising prices for the service. Nonetheless, revenue has declined in the past two quarters.

In addition, CEO Hans Vestberg is slated to speak at the Goldman Sachs Communacopia + Technology Conference on September 14, where he’s likely to discuss the 5G rollout. 

AT&T notched $464,000 in net 5G additions in the second quarter, but its revenue increased by just 1%. 

T-Mobile said it added 1.6 million net customers, and that its 5G network reaches 98% of Americans. 

So where does that leave investors with respect to the telecoms?

Other Industries Outperforming Telecom

Other industries and sectors are performing better and would generally be better choices over stocks that are declining. 

However, for retirees, in particular, there’s definitely a need to generate income through investments. That’s where dividend stocks come in. 

But use caution, and don’t just spring for the stock with the highest yield. Buying stocks with high dividends when the stock is falling can be tempting due to the attractive yield, but it carries risks. 

Falling stock prices could indicate underlying issues in the company, as is the case with the telecom stocks, at least to some degree. Those issues could impact future dividend sustainability. The bottom line is: While dividends are an important part of a retirement income strategy, use some caution when choosing dividend stocks, including well-known, large-cap telecoms.