Telecom stocks have always found favor with investors seeking high dividend yields, as they are relatively defensive companies with stable and predictable cash flows, and also because they reinvest a lower proportion of earnings back into the business compared to companies in many other sectors. For instance, the S&P 500 currently offers a dividend yield of about 2.1%, while telecom bellwethers AT&T and Verizon offer yields that are more than double that. Below, we compare the dividend yields of AT&T and Verizon, two of the biggest wireless names.
While AT&T offers a higher dividend yield compared to Verizon, its dividend growth rate over the last 5 years has been slower. Moreover, AT&T's dividend stems from a higher payout ratio (79% vs 53% for Verizon), implying that Verizon has more funds to reinvest and drive further growth, in addition to providing better dividend coverage. Verizon also has a more loyal postpaid wireless phone subscriber base, with churn levels remaining at under 1% for 2015, allowing for more stable revenues. That said, AT&T has a longer history of raising its dividends, with 32 years of consecutive growth compared to Verizon's 11 years of dividend growth.
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