Aqua America Inc (WTR), Duke Energy Corp (DUK), AT&T Inc. (T): Consolidating Utility Industries

AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) have both been rumored to be looking at potential takeover targets. In the red corner, Verizon has been eyeing up the 49% of Verizon Wireless that U.K. powerhouse Vodafone controls currently. While in the blue corner, AT&T Inc. (NYSE:T) is rumored to be taking over an international telecommunications company like Spain’s Telefonica.

Both AT&T Inc. (NYSE:T) and Verizon can trace their origins back to the original AT&T Bell System, that was broken up in the 80’s. Both companies grew by taking over other small telecom companies and eventually breaking into the mobile phone market for growth. AT&T purchased Cingular Wireless in 2006 and owns all of its assets, while Verizon shares its wireless division 51%/49% with Vodafone.

Neither AT&T nor Verizon will have much luck in the U.S., but purchasing an over seas competitor looks like the only way to keep growing their customer base. Both companies have comparable dividends with AT&T at 5% and Verizon at 4%. However, Verizon relies heavily on the Verizon Wireless subsidy to continue paying out its dividend.

Both companies have seen record low customer churn the past three years, leading to very predictable revenues and expenses. However, with AT&T owning its assets outright, it is able to return more capital to shareholders than Verizon by partaking in a meaningful share repurchase program. The company repurchased 5% of its shares outstanding last year, and saved over $700 million in dividend payments. That money can now be used to repurchase more shares, increase the dividend, or pay down debt. This makes AT&T a more attractive investment opportunity than Verizon in the telecommunications space.

Foolish bottom line

As industries consolidate, they provide great growth opportunities for the companies that remain. Conservative investors looking for income should turn to AT&T and Duke for leaders in the consolidated mature markets. On the other hand, investors looking for growth should be thirsty for the water industry, and companies like Aqua America Inc (NYSE:WTR), for capital appreciation in a stable industry.

The article Consolidating Utility Industries originally appeared on Fool.com and is written by Wes Patoka.

Wes Patoka owns shares of Duke Energy, AT&T and Verizon Communications. The Motley Fool recommends Aqua America. Wes is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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