Updated on October 21st, 2021 by Bob Ciura
Telecommunications stocks have a longer history than most people realize. For example, AT&T (T) can trace its roots back to the founding of Bell Telephone Company in 1877.
The sector has obviously changed a lot since 1877, and with new trends such as mobile phones, the Internet, the emergence of cable TV and other developments telecommunications companies are active in many more areas than they were a century ago.
Today, the telecommunications sector is categorized by high capital investment, sluggish growth, and generous dividend payments. In short, the telecommunications sector has matured.
You can download a list of communication services stocks (along with important financial ratios like P/E and payout ratios) by clicking on the link below:
In this article we will look at five major dividend-paying telecommunications stocks that we believe will produce attractive returns, based on rankings in the Sure Analysis Research Database.
We further narrowed the list to include only stocks with a Dividend Risk score of ‘C’ or better, indicating sustainable dividend payouts.
The companies are ranked by total return potential over the coming five years.
Table of Contents
- Telecom Stock #5: SK Telecom Co. Inc. (SKM)
- Telecom Stock #4: Telephone & Data Systems (TDS)
- Telecom Stock #3: Comcast Corporation (CMCSA)
- Telecom Stock #2: Verizon Communications (VZ)
- Telecom Stock #1: AT&T Inc. (T)
Telecom Stock #5: SK Telecom Co. Inc. (SKM)
- Expected Returns: 9.1%
SK Telecom is the largest wireless telecom operator in Korea by revenue and number of subscribers. It was founded in 1984 as Korea Mobile Telecommunications and became SK Telecom in 1997. The company is a part of the SK Group, which owns 27% of the company and is one of the largest conglomerates in South Korea.
5G is a major growth catalyst for SK Telecom in the years ahead.
Source: Investor Presentation
The company trades on the NYSE under the ticker SKM as well as the Korea Exchange (XKR). SK Telecom has a market capitalization of ~$18 billion.
Click here to download our most recent Sure Analysis report on SK Telecom (preview of page 1 of 3 shown below):
Telecom Stock #4: Telephone & Data Systems (TDS)
- Expected Returns: 10.6%
Telephone & Data Systems is a telecommunications company that provides customers with cellular and landline services, wireless products, cable, broadband,and voice services across 24 U.S. states. The company’s Cellular Division accounts for more than 75% of total operating revenue.
Telephone & Data Systems has increased its dividend for over 40 years in a row, placing it on the Dividend Champions list.
In addition to returns generated by an expanding valuation multiple, expected growth and dividends, we expect total returns of 11.0% per year over the next five years.
Click here to download our most recent Sure Analysis report on TDS (preview of page 1 of 3 shown below):
Telecom Stock #3: Comcast Corporation (CMCSA)
- Expected Returns: 11.8%
Comcast is not a telecommunications company in the sense that it is not focused on wireless services. Rather, Comcast generates the majority of its revenues from cable services. It also operates in other segments such as broadcast television, filmed entertainment and theme parks.
Comcast stock trades for a P/E ratio of 18.5, slightly below our fair value estimate of 20. An expanding P/E could boost returns, as will expected EPS growth of 9% and the 1.8% dividend yield. Overall, we expect total returns of 11.8% per year over the next five years for Comcast stock.
Click here to download our most recent Sure Analysis report on Comcast (preview of page 1 of 3 shown below):
Telecom Stock #2: Verizon Communications (VZ)
- Expected Returns: 12.7%
Verizon Communications was created by a merger between Bell Atlantic Corp and GTE Corp in June 2000. Verizon is one of the largest wireless carriers in the country. Wireless contributes three–quarters of all revenues, and broadband and cable services account for about a quarter of sales. The company’s network covers ~300 million people and 98% of the U.S.
Verizon has now launched 5G Ultra–Wideband in several cities as it continues its rollout of 5G service. Customers in parts of Atlanta, Dallas, Detroit, Indianapolis, Omaha and Washington, D.C. were able to access the company’s 5G network.
Verizon stock trades for a 2021 P/E ratio of ~10, compared with our fair value estimate of 13. Shareholder returns will be boosted by a rising valuation multiple, expected EPS growth of 4%, and the 4.8% dividend yield. Overall, total returns are expected to reach 12.7% per year over the next five years.
Click here to download our most recent Sure Analysis report on Verizon (preview of page 1 of 3 shown below):
Telecom Stock #1: AT&T Inc. (T)
- Expected Returns: 15.3%
Like Verizon, AT&T sits atop the U.S. telecom industry. AT&T is a telecommunications giant, as its core Communications segment provides mobile, broadband and video to 100 million U.S. consumers and 3 million businesses.
In the 2021 second quarter, AT&T generated $44.0 billion in revenue, up 7.6% from Q2 2020. Adjusted earnings-per-share (EPS) equaled $0.89 compared to $0.83 in the year ago quarter. AT&T ended the quarter with a net debt-to-EBITDA ratio of 3.15x.
Source: Investor Presentation
AT&T is optimistic about generating reasonable growth and the payout ratio had been falling, resulting in excess funds to divert toward paying down debt. AT&T also has a long history of increasing dividends each year (AT&T is currently a Dividend Aristocrat).
With a P/E below 10, AT&T is undervalued against our fair value estimate of 11. The combination of 3% expected EPS growth and the 8.2% dividend yield lead to total expected returns of 15.3% per year over the next five years.
Click here to download our most recent Sure Analysis report on AT&T (preview of page 1 of 3 shown below):
Investors have long relied upon telecommunications stocks for consistent results and steady dividends, along with a high dividend yield. These 5 stocks are no exception; all of these telecom stocks have current yields well above the S&P 500 index average. And, they all have the ability to generate solid cash flow regardless of the economic environment, which helps protect their dividend payouts during recessions.
We view all 5 telecommunications stocks on this list as appealing for their attractive total returns, due to their long-term growth, high dividend yields, and low valuations.