I was trying to decide what I wanted to write about next. I kept seeing people on Reddit get all googly-eyed about buying AT&T or Verizon stock because of the correction today. They’re cheap! As if that is a good reason to buy a stock. I can’t pass up that big AT&T dividend!
I’m going to be blunt-I don’t think they are thinking this through. Both of these stocks look horrible to me and I wouldn’t touch them with a 20 foot pole in someone else’s account. Ok, maybe if it was someone I didn’t like, hahaha.
Both Verizon and AT&T are both ridden with debt, have management issues, are losing market share, and present little to no growth. Do you need a dividend that bad?
Why I don’t like AT&T or Verizon Stock
Dividend Growth of Verizon vs. AT&T
So, you want to buy Verizon for the dividend?
Dividend Growth for Verizon = 1.9% over the 1 year and 2.08% over the last five years.
I personally have no idea why anyone wants to lock in a yield of 5.37% for the next X years with a company that has a strong history of poor dividend growth. At 2% a year, that won’t even keep up with inflation. The dividend yield would need to be higher for me to lock in with such poor dividend growth.
What about AT&T? Is it any better?
Dividend Growth = NEGATIVE, I’ll end it there. They cut the dividend. There is absolutely nothing to say they won’t reduce it again or even more the next go around.
Dividend Score is a F
Debt levels for Verizon and AT&T
Honestly, I’m amazed that Verizon looks even worse than AT&T when it comes to debt. Once again, why would I invest in these companies over a basic Total Stock Market ETF or Mutual Fund that collectively doesn’t have such debt levels? Especially in a high interest rate environment? Especially in an environment where those interest rates might go even higher? Almost seems like the worst possible place one could be.
A few other side notes: Verizon has less cash in hand than they ever have. 1.66 Billion Cash on Hand. Meanwhile, their long-term debt is 140 Billion and Total Liabilities are 280 Billion. That’s a heck of a pickle. Sure, a lot of it is at lower rates. However, that is a ton of debt.
Score= Both get an F
|P/E||P/CF||Cash Flow Growth Rate over last 5 yrs|
This is where the noob investor says, look at those incredible P/E values, it’s cheap, time to buy. Hello? Look at the Cash Flow Growth Rates. These companies have barely grown their cash flow in the last five years. AT&T looks absolutely horrible. Verizon’s 5.6% is nothing to write home about. I wonder what the average Cash Flow Growth Rate of the Total Market is?
Score=A big F on Cash Flow Growth Rates despite low P/E’s
Earnings and Revenue Growth / VZ vs. AT&T
|EPS Q to Q||Revenues|
AT&T EPS is 0.65. Meanwhile, it was 0.69 in Q2 of 2015 and 0.64 in Q2 of 2014. Verizon? It is 1.31 and looks better than it has in the past. AT&T is a heavy no for me. Once again, I think the competition has increased. In this environment, AT&T is going to have a tough time.
Some anecdotal evidence for you-My Home internet is with AT&T, but my Mobile Phone is with Tmobile. I recently had my AT&T internet repaired and after the repair was over, the guy’s supervisor came out to my house and attempted to get me to switch from Tmobile. This is their new tactics for trying to get your business. I think they are desperate. NEWSFLASH-I didn’t switch (it was too expensive, even with all of the discounts he conjured up).
I left Verizon for phone service many years ago. I got tired of the contracts and increasing prices. They are losing consumer subscriptions and I’m sure it’s because they went up on their prices too much. I literally don’t know a single person that has Verizon as their mobile carrier.
Score- AT&T gets a big fat F, Verizon a D.
Granted, past performance doesn’t indicate future performance. However, I see nothing to make me believe that this is going to change. Here is a graph of VTSAX vs. both AT&T and Verizon since 2009
If you bought VTSAX, you would have ended up with 54K or a 13.35% CAGR. Meanwhile, T yielded 21K or 5.79% and Verizon yielded 31K or 8.64%. The Total Market blew AT&T away. You missed out on 24K because you had to play around with Verizon’s dividend.
I picked another random year to start (2018). Here are the results. ITOT 9.15% CAGR, AT&T -1.02%, VZ 3.56%. I literally just saw a guy say he bought Verizon because it was like a bond. No it’s not. The opportunity cost of holding either of those stocks over the Total Market was big. As Ben Felix loves to say, “Dividends are irrelevant.” You probably already know, I don’t take his extreme approach, as I do like some dividend stocks. However, neither of these stocks is a quality dividend stock.
I have to give T its due. Over the last year, it has outperformed the market. However, that is an extremely short time period, and as of today, things are not looking good. It was an awful earnings report.
In summary, if you are buying either of these stocks, I think you need your head examined. In fact, if you are debating either of these, just go throw that money into VTI, ITOT, VTSAX, or heck even a small cap value ETF. You’ll be better off ten years from now, I’m sure of it.