In light of recent stock market volatility, the telecom sector provides relative stability. Telecom stocks tend to be more stable because mobile devices are vital in society, enabling telecom companies to generate steady revenue and free cash flow.
Amidst a general downturn in stocks over the past few weeks, telecom giant AT&T achieved a 52-week high of $29.03 in April. Meanwhile, Verizon Communications saw its shares peak at $47.35 in March. As two of the largest telecom companies in the United States, AT&T and Verizon present attractive investment opportunities. However, deciding between the two is a complex decision, prompting an analysis of their long-term potential.
AT&T is currently at a pivotal moment in its business trajectory. After divesting entertainment assets like DIRECTV, the company is focusing on expanding its 5G wireless and fiber-optic broadband networks. This strategic move is significant as such expansions come with substantial costs. For instance, AT&T allocated $20.3 billion for capital expenditures last year and plans to invest $22 billion this year.
According to CEO John Stankey, these investments are establishing a strong base expected to provide attractive returns in the future. In 2024, AT&T’s mobile service revenue increased by 3.5% year-over-year to $65.4 billion, accounting for a significant portion of the company’s total $122.3 billion revenue for the year. The broadband internet sector also showed growth, with AT&T ending 2024 with 14 million broadband connections, producing $11.2 billion in revenue—a 7% year-over-year increase. AT&T projects continued growth in mobile service revenue of 2% to 3% annually through 2027. The company aims for free cash flow to reach at least $16 billion this year, with an annual $1 billion increase expected through 2027. This growth ensures stability for AT&T’s dividend, which currently yields 4%.
Verizon, on the other hand, continues to bolster its mobile service and fiber-optic broadband sectors. Mobile service revenue grew 3.1% year-over-year, contributing $79.1 billion to Verizon’s $134.8 billion total revenue in 2024. Verizon plans for mobile service revenue to grow by at least 2% in 2025. The company’s broadband business is expanding too, with a 15% increase from the previous year, ending 2024 with 12.3 million broadband connections. This growth resulted in $12.9 billion in revenue from Verizon’s Fios internet service.
An additional growth strategy for Verizon involves acquiring Frontier Communications Parent, enhancing its broadband connections by about 10 million by 2026. Verizon is also entering the artificial intelligence space with its AI Connect service, facilitating tech giants like Alphabet in delivering AI to edge devices using its wireless network.
In deciding between AT&T and Verizon, both companies boast expanding sales in their core mobile and broadband sectors. However, AT&T outpaced Verizon in postpaid phone subscriber growth, registering 1.7 million net additions in 2024 compared to Verizon’s 887,000. Nevertheless, Verizon’s dividend yield, exceeding 6% and increasing for 18 consecutive years, stands out. This sustainability is supported by robust free cash flow, which reached $19.8 billion in 2024, up from $18.7 billion in 2023.
Valuation-wise, the forward price-to-earnings (P/E) ratio, which indicates how much investors are willing to pay for anticipated earnings, currently favors Verizon as a better value investment. Despite AT&T’s promising growth prospects, Verizon’s favorable valuation, rising dividend, strategic acquisition plans, and AI ventures position it as the stronger long-term investment.
