Telecom Titans: Comparing Verizon and AT&T for Growth Potential

Key Points

• Verizon Communications and AT&T are two of the world's top telecom stocks that have very similar market capitalizations.
• AT&T stock showed out with its 2024 performance, especially compared to Verizon. However, will this continue for years to come?
• Both offer strong dividend yields of over 5% and potential upside.

When it comes to stocks that can offer both income and upside, two of the world’s largest telecom companies are interesting places to look. Verizon Communications NYSE: VZ and AT&T NYSE: T both have substantial dividend yields of over 5%. Additionally, both can provide the potential for capital appreciation. Based on average Wall Street price targets, both show significant upside potential in their stock prices.

Verizon’s implied upside comes in at over 21%, while AT&T’s sits at 17%, based on Jan. 16 closing prices. If these figures come to fruition in 2025, the upside plus dividends would provide a not-too-shabby return on the year. In 2024, AT&T was the company that far and away delivered the superior combination of income and growth. The stock provided a total return of 44%. Verizon’s return was 13%. However, the question remains: which company is the better buy for 2025 and beyond? I’ll compare the strategies of the two firms to provide my take on this question.

AT&T: Fiber-First Focus

Both company’s strategies focus largely on investing in their wireless and broadband capabilities. Wireless means mobile phone coverage. Broadband means internet connections to homes and buildings. Both have pursued investments in 5G for their wireless business. AT&T’s wireless services revenue was $16.5 billion last quarter.

The main difference between the two comes in their broadband strategies. AT&T’s strategy mostly revolves around fiber-optic connectivity. It now has 9 million fiber-optic customers. It also has a much smaller fixed wireless business, known as AT&T Internet Air, with around 500,000 subscribers. The difference is that fiber uses cables to connect to buildings. Fixed wireless uses towers to send internet signals.

The company’s clear preference for fiber, based on the size of the customer base, is because of two beliefs it has about the future. First, the company sees the demand for high-performance broadband connectivity growing rapidly. As data transmission rises, fiber's faster speeds and lower latency will make it users' preferred choice over fixed wireless.

Second, AT&T sees fiber as the backbone of a future where broadband and wireless networks converge. In this reality, cell towers and buildings are all connected to fiber. This can maximize the speed of both broadband and wireless. It also lowers long-term operating costs and makes upgrading easy after laying the initial fiber cables. Over the past few years, AT&T has seen increasing success in converging its wireless and fiber customers. Now, 40% of fiber customers are also wireless customers.

Verizon: Larger Wireless and Fixed Wireless Businesses

Verizon invests heavily in 5G for wireless, and its wireless service revenue was nearly $20 billion last quarter.

In broadband, it has opted for a more mixed approach between fiber and fixed wireless.

The company has 7.1 million fiber connections. It also recently announced it will acquire Frontier Communications Parent NASDAQ: FYBR.

Together, they have around 10 million fiber customers and approximately 25 million fiber passings. Passings refers to buildings that sit along fiber network routes and could connect. Essentially, it shows the total potential fiber customers, based on cable currently laid. AT&T's fiber passings sit at 29 million. Analysts expect that the Frontier deal will not close for over a year.

Verizon also has 4.2 million fixed wireless customers. Overall, it gained 396,000 broadband customers last quarter, compared to AT&T’s 28,000. However, fiber adds of 226K were more than five times higher than Verizon’s 43,000. Both companies are losing a lot of Digital Subscriber Line (DSL) customers. This explains the gap in total broadband and fiber adds.

Verizon & AT&T: Not Mutually Exclusive

Overall, there are things to like about both AT&T and Verizon. Verizon generates about $3 billion more in revenue a year, while AT&T is generating a little less than $2 billion more in free cash flow. Markets value the firms nearly identically, with around $160 billion in market capitalization. AT&T’s forward price-to-earnings (P/E) ratio is around 23% higher than Verizon’s. Verizon’s 7% dividend yield is substantially higher than AT&T’s 5% yield.

AT&T’s long-term fiber strategy is working significantly better than Verizon’s, but Verizon also has a much larger fixed wireless business. Its overall broadband strategy is also growing much faster. In my view, both companies look like good options for income and upside. Allocations to both can allow for capitalization on different trends and changes in market sentiment. Between these two telecom giants, it doesn’t have to be one or other.