Verizon vs. AT&T Stock - Which is Better Long-Term?
While both $VZ and $T have received consistent dividend increases in the past 10 years their stock and company performance has begun to diverge in recent years.
To not bury the lead — While Verizon seems to be the better managed and focused company currently, it’s valued significantly higher than AT&T currently, and thus $VZ’s risk-adjusted return over the long-term is unlikely to be better than $T.
Ultimately our decision on which to invest in is both, with a slight edge towards AT&T as we believe its higher debt load will cause outperformance relative to Verizon’s stock in what we believe will be an inflationary environment in the coming years — however we do not hold a strong bias either way and opt to seek trilateral (40/30/30) telecom exposure between AT&T, Verizon, and a few foreign telecom stocks we’ll talk about later in this article.
Vz vs T - Which is better according to the Data?
If you’re looking for a strict data-focused approach to making your decision — there’s absolutely no contest. $VZ looks strong and ready to rumble and $T looks like a beached whale suffocating on the shore; $VZ has returned 2-3x what $T has in the last 10 years, including dividends reinvested.
However if you take a contrarian approach to the data, $T is about 30% cheaper, with a P/E 30% less than VZ, a dividend yield over 30% higher than VZ, and about 30% more revenue currently than Verizon.
On a strictly forward-looking basis $T is the screaming buy, but on a past-performance basis $VZ is absolutely the better buy. This makes the situation difficult, which is why we don’t just look at the data, but also take into account opinion-pieces into our investment decision, as well as opt to invest in both $T and $VZ.
Which is the right choice for the Long-Term - Vz or T?
As we mentioned above, data-wise it’s a toss-up depending on your philosophy, and we all either first-hand experienced or heard from someone close to us about how horrible both of their customer service’s are, so it’s a little hard to pick who to invest in here — as $T is definitely cheaper, but $VZ definitely performs better historically, and ultimately we can’t get any information-edge in terms of which “does business better.”
As a result our conclusion is we’ll simply buy some of both — Our assumption for the future is inflation and as a result we believe $T will benefit and have lots of its debt-related risks evaporate due to its debt being inflated away — Because of this we opt to have slightly more $T than $VZ, however we aren’t firmly in favor of one over the other. You may want to do the opposite if your assumption is deflation, or a stable monetary environment.
Speaking as direct as possible: The better choice depends on what you believe will happen in the long-term. Inflation? AT&T is probably the better choice. Stable monetary environment or deflation? Then Verizon would likely be better.
Other Telecom Stocks to Consider:
While we’re fans of AT&T as well as Verizon’s stock, as they’re the perfect ‘bond proxy’ in our opinion — relatively stable assets that produce fair yield — they’re largely matured companies with little growth left in them — Because of this we opt to invest in some foreign telecom stocks.
We’re picky about our international stocks, and the ones we personally choose to go with are emerging-market telecom companies such as Turkcell (TKC) or Vivo Brasil (VIV) as they are both dominant leaders in their respective countries, have strong growth, and fair dividends — not to mention we have personal experience living in both of these countries and have first-hand experienced and seen how they’re more efficient and have better service than their competitors, which makes us believe their dominance will continue and grow as time goes on.
They both operate in relatively capital-friendly countries, and thus we invest in them — there’s also plenty of others, including other US telecom companies, however ultimately we do not like their valuation’s personally or they’re extremely hard to invest in due to having to buy using a local brokerage in a country such as Nepal, which we do not believe is reasonable for most people.
How does AT&T's recent DirectTV Spinoff Change Things?
In the not so distant past AT&T announced it’d spin-off the DirectTV portion of their business to further narrow down their focus on exclusively telecom activities and to get a sizeable chunk of cash to pay off some of their debt. Ultimately there’s a lot of rumors that this may result in a dividend cut, and some people think it’ll be good, some think it’ll be bad, but truthfully nobody really knows in this case. Only time will tell.
Ultimately what we can say and think on this topic is that AT&T is likely to trade more like Verizon in the future as a result of this, as they will be more focused and have less assets viewed by the market to be on the decline (cable tv for example). This presents a good arbitrage opportunity in our opinion to take the largely contrarian position that it’ll be overall good for the business in the long-term, albeit may result in seemingly negative things at first (a dividend cut).
Despite that potential arbitrage opportunity we’d say it’s probably still wise to own both VZ and T, as well as potentially a few international telecom stocks we covered above if you like the industry and just want stable income and an investment that otherwise keeps up with inflation and then a bit — what we’d call a bond proxy.