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.
- 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?
I’m long in T, it was some of my first purchases. I was excited about there acquisition of Time Warner since I think it was a very good strategic descision. Am not sure about the current valuation though. I want to add more but am first spreading my purchases over different sectors.
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Yes, im also always for expansions trough acquisitions 🙂 TW is one of things why I bought T. Well the stock price is quite fallen in past few months P/E is bellow 20 and yield around 5% which is rare to find in these days. If I had additional capital one of priorities would be defiantly T and some to VZ.
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Hello. Thank you for blogging! I have a question regarding your positions in ESO1L, KNF1L, EEG1T. What do you think about these companies and what were your reasons for buying? I have KNF1L also in my portfolio and ESO1L ja EEG1T are both in my watchlist. Thank you!
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Well they are all good dividend payers, but personally my favorites are OEG and TKM. ESO pays quite good dividends and should do in the future as it is state owned monopoly grid, KNF is more interesting and more dynamic company, but also has dividend paying policy. EEG interested me in stable dividend increase and ONLY share buyback in baltics. For a dividend investor Baltic companies dont give lost of opurtunities 🙂
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Can you say what stocks from Baltics are on your watchlist right now?
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Actualy none 🙂 Now im targeting US stocks. But as I said my favorites for now would be OEG (super low price) and TKM.
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I own both T and VZ. However, recently I have reduced my VZ position due to some concerns on their debt level and dividend coverage. I still own half the position I used to. Will start adding again when things start to turn around at VZ.
As for T, it is one of my biggest positions and for that reason I can’t add anymore at this time.
Thanks
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Hi ATM. Nice to see fellow investors. Regarding VZ debt and dividends, they are not that bad if compared to T. Debt/EBITDA is less the 3, which is barable. No bellow zero as JNJ but still 🙂 Its a good idea yo own both as you will not lose in L/T perspective if one will outcompete the other 🙂
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I own T and I am looking at VZ also. I need to add about 5 stocks to my portfolio and VZ is definitely a contender right now. I like both because I think the companies have strong underlying fundamentals.
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Yes im thinking to own both to. Its a sure win situation when owning both in case one will outcompeat the other at some timr in the future 🙂
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