When it comes to investing, there are different strategies that investors can employ. Some focus on growth stocks, aiming to capitalize on the potential for stock price appreciation. Others, however, prefer to invest in stocks that provide a steady stream of passive income through dividends. In this article, we will take a closer look at two well-known passive income stocks from the telecom sector: Verizon Communications (VZ) and AT&T (T).
Verizon Communications has had a solid but not spectacular year in 2024, with its stock up about 5% year to date. The company offers a hefty $2.71 annual dividend, which translates to an impressive yield of roughly 6.8%. When factoring in the dividend yield, investors in Verizon have enjoyed a total return of nearly 13% so far this year. While this return is respectable, it falls behind the performance of the S&P 500 and lags behind its key competitor, AT&T.
Despite its slightly lower stock performance, Verizon has been making progress in key areas such as improving margins, generating free cash flow, and reducing debt. The company’s gross margins have increased from 56.8% to 60.3%, and its net debt has decreased from $151 billion to $146 billion.
On the other hand, AT&T has seen a significant increase in its stock price, with shares up by 36% year to date in 2024. The company also offers a generous $1.11 dividend per share, resulting in a yield of approximately 4.9%. This has led to a year-to-date total return of around 45% for shareholders. AT&T’s improving fundamentals, including a jump in gross margin from 56.6% to 61.5% and a reduction in net debt from $133 billion to $128 billion, have contributed to its strong stock performance.
When comparing Verizon and AT&T as passive income stocks, there are key differences to consider. Verizon boasts a higher dividend yield of 6.8%, which means that a $50,000 investment would generate around $3,400 in annual dividend income. In contrast, AT&T has a slightly lower yield of 4.9%, resulting in approximately $2,400 in annual dividend income for the same investment amount.
While Verizon offers a higher dividend yield, AT&T’s stock performance in 2024 has significantly boosted its total return, surpassing that of its competitor. Looking ahead, Verizon’s acquisition of Frontier Communications may impact its stock performance due to uncertainties surrounding the deal and the additional debt the company will take on. Investors who prioritize total returns over dividend income may find AT&T to be a more attractive option.
In conclusion, both Verizon Communications and AT&T are solid passive income stocks for income-seeking investors. While Verizon offers a higher dividend yield, AT&T’s strong stock performance in 2024 may make it a more appealing choice for investors looking for a balance of dividend income and total return. Ultimately, the decision between these two telecom giants will depend on individual investment goals and risk tolerance.
