Investing in Steady Revenue Stocks: Comparison between Verizon and AT&T
Some financiers focus on expansion; others hunt for shares that can provide passive earnings.
Let's delve into two well-renowned passive earnings stocks from the telecom field: Verizon Communications (VZ -0.10%) and AT&T (T -0.44%).
Which is the superior passive earnings stock at present? Here's my perspective.
Verizon Communications
The company's stock had a solid but not remarkable 2024, with shares rising approximately 5% year to date. Add to that the substantial $2.71 annual dividend -- representing a yield of roughly 6.8% -- and investors in Verizon reaped a total return of almost 13%.
Although this is a solid year-to-date return, it still trails behind what the S&P 500 achieved. And as we shall see, it pales in comparison to Verizon's primary competitor.
Regardless, the company is making progress in its primary focus areas. For a value stock like Verizon, that signifies enhancing profit margins, creating significant free cash flow, and diminishing debt. Overall, its gross margins escalated from 56.8% to 60.3%, while net debt decreased from $151 billion to $146 billion.
AT&T
As of this moment, shares of AT&T increased by 36% year to date, rendering 2024 one of the finest years the telecom titan has experienced in several years. On top of that, the stock dispenses a substantial $1.11 dividend per share, which translates into a yield of roughly 4.9%. Combined, that means shareholders enjoyed a year-to-date total return of around 45% in 2024.
The company's rapidly improving fundamentals are the reason for its outstanding stock performance. For instance, consider its gross margin: Over the previous year, it surged from 56.6% to 61.5%. Furthermore, net debt was diminished from $133 billion to $128 billion.
Which is the superior passive earnings stock at present?
For earnings-focused investors, Verizon and AT&T are both commendable stocks. Nevertheless, there are crucial disparities between these two.
Verizon presents a hefty dividend yield of 6.8%. Consequently, a $50,000 investment should yield roughly $3,400 in annual dividend revenue.
Compared to AT&T, which presents a yield of 4.9%. That's nothing to scoff at, but it's about 200 basis points (or 2 percentage points) less than Verizon's.
This means a $50,000 investment in AT&T shares should yield approximately $2,400 per year in dividend income -- around $1,000 less than Verizon. However, this year, the performance of AT&T's stock bettered its total return to more than three times what its rival achieved.
Looking ahead, Verizon is planning to acquire Frontier Communications. This will serve a strategic purpose, aiding it to compete in the integration of various services. Nevertheless, it may act as a burden on the stock due to uncertainties surrounding the deal and the additional debt the company will assume as part of the agreement.
For that reason, investors who prioritize total returns over merely dividend income may opt for AT&T.
Based on the given text, here are two sentences that contain the words 'money', 'finance', and 'investing':
Investors looking for passive earnings might consider the telecom stocks Verizon Communications and AT&T, as they offer good dividend yields and have performed well financially. With the right strategy, investing in these stocks could potentially bring in substantial money over time.
