Dividend Stock Battle: AT&T Vs Verizon

This is our first of a long series of Dividend Stock battles! The purpose of creating such a series was explained in my recent newsletter:

When investors are interested in a specific sector, they might come down to 2 interesting stock picks in the same category that both look strong. Unfortunately, it doesn’t mean that if you find 2 great stocks that you necessarily have the money to do it and that it will fit your asset allocation. This is why I have decided to analyse 2 stocks of the same industry monthly and publish a comparison to know which one I would pick for my portfolio. So let the battles begin!

ROUND #1: WHAT’S INSIDE THE BLACK BOX?  AT&T Vs VERIZON COMPANY STRUCTURE AND PRODUCT OFFERING

While both companies are pretty similar on several levels (type of products, contracts, distribution network, etc) there are a few things differentiating AT&T from Verizon. The first one is customer service. In the blue corner, we have AT&T known for taken its clients for granted and offering an mediocre customer service experience to its clients. In the red corner, we have Verizon which is known for its A-1 customer service. Therefore, when you have a problem, you will definitely remember your experience for better or worse since the gap between the 2 companies is pretty clear.

AT&T made a very good move when it became the first distributor of the now famous iPhone. We can guess that T is benefiting from its huge reputation and branding. However, Verizon was able to get its distribution license too. We can tell that for future opportunities, the first company to pick up the “coolest phone” or products will gain a serious edge as their sales will automatically go up.

ROUND #2: NOTHING IS MORE IMPORTANT THAN THE NUMBERS: AT&T Vs VERIZON  FINANCIAL STATEMENTS

DIVIDEND YIELD & DIVIDEND GROWTH

I must give a big uppercut from AT&T to Verizon when we look at the dividend data. Dividend yield, dividend growth over 5 years and dividend payout ratio is better than Verizon. We can say that while AT&T sits on their fat steak when it comes down to serve their clients, they are much faster to please their investors! I think that AT&T just picked an advantage in the battle ring over Verizon!

COMPANY METRICS

This is where it gets tricky: Verizon shows stronger earnings growth while AT&T is showing a smaller P/E ratio and a better ROE. In terms of sales growth, both companies are pretty similar but we can bet that Verizon will probably increase faster than AT&T in the years to come. After looking at both financial results, I would give a small advantage to Verizon for its earnings growth potential.

FINAL ROUND: AT&T Vs VERIZON – LET’S DROP THE GLOVES ONE MORE TIME!

It hurts, they bleed, but the battle is not over yet. We are set for the final round. While both companies will fight each other with equal weapons (iphone!), the next one to get the coolest gadget will probably be able to win this final round.

In the meantime, I would separate the 2 companies for the final count and declare 2 winners… but for different investors:

A)     Dividend investors looking for steady income should pick AT&T

B)      Dividend investors looking for growth should pick Verizon

Because of its habit of paying steady high dividends while maintaining a low payout ratio, I would pick AT&T over the long term. On top of that, since Verizon shares have climbed since the beginning of the year, it is very possible that AT&T has better growth potential as of today.

However, Verizon appears to me as a company working on a solid basis (innovation and customer service) which should push its sales (and earnings!) over time. This is why I think that growth over time will be higher with Verizon. But in order to finance its growth, they might slack on the dividend payout growth ;-).

What do you think? Which one of AT&T and Verizon would you pick this morning?

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