So as you probably noticed in our Recent transaction post we invested into one of two largest US telecommunication company AT&T. Other major US telecommunication company is  Verzon Communications. Thous two controls absolute majority of US phone and internet service market, so I would like to dig deep into these companies figures just as I did with my first two investments of Johnson & Johnson and Intel financial analysis.

  • Dividends: both companies has very high dividend yield, this was actually one of the main reasons why I initiated the position last months. T with todays closing price of $38,73 yields at 5,1% and VZ at their closing price of $46,44 yield is just little bit smaller but also stands at very attractive 5,0%. VZ has more attractive payout ratio of 77% compared to T 95%, but both are a bit high.
AT&T Y2012 Y2013 Y2014 Y2015 Y2016 TTM
Earnings Per Share USD 1.25 3.42 1.24 2.37 2.10 2.04
Dividends USD 1.76 1.80 1.84 1.88 1.92 1.96
Payout Ratio % 141% 125% 57% 209% 81% 95%
Verzon Communications Y2012 Y2013 Y2014 Y2015 Y2016 TTM
Earnings Per Share USD 0.31 4.01 2.42 4.38 3.22 2.99
Dividends USD 2.02 2.08 2.14 2.22 2.27 2.31
Payout Ratio % 654% 273% 45% 91% 66% 77%
  • Earnings: T showed stable growth in top line (sales) trough acquisitions and business development, while bottom line was a bit flat and volatile. P/E ratio is at 19 at the moment and was around 20 at the price that I bought it. VZ is traded a bit cheaper at 15.5 P/E. But if looking at generated EPS during last 5y VZ looks a bit flattish, while T shows some sort of increase.

EPS

  • Balance sheet: Both companies looks a bit leveraged, which is common for telecom companies as they finance their acquisitions and expansions trough borrowing. T equity ratio stands at 30% while VZ is at only 9%. I don’t like companies with low level of equity, so this was one of the main reasons why I chose T, but not VZ. Next very important ratio NetDebt/EBITDA. T has 2,3x (124-6/51) which I find to be quite reasonable level. VZ has 2,6x (108-3/41), bit bigger but still reasonable level.

So these are the main metric of largest US telecommunication companies. Good yield looks attractive for good instant income boost without waiting for some years for dividends to grow, but bit slow growth both in earnings and in dividends is weak space. Both companies are leveraged, but not on a critical level. Both companies are good investments into dividend paying portfolio. Personally I don’t like very low equity level of VZ, this is why the company is not in my portfolio for now but definitely in my M/T investing plans.

What do you think about these two US telecom giants?