We recently compiled a list of the 10 Best Telecom Dividend Stocks To Buy for 2024. In this article, we are going to take a look at where Verizon Communications Inc. (NYSE:VZ) stands against the other telecom dividend stocks.
The telecommunications sector plays a vital role in the United States, attracting considerable interest from investors due to its steady focus on innovation and rapid technological advancements. Beyond offering standard voice and data services, telecom firms drive progress by introducing innovations such as 5G technology, Internet of Things (IoT) solutions, and cloud computing, which support digital transformation across multiple industries. Investor interest in the sector is evident from estimates showing that from 1985 to 2020, wireless network operators invested over $600 billion in capital expenditures, according to a report by the Cellular Telecommunications Industry Association (CTIA). This figure excludes the more than $120 billion paid to the federal government for spectrum rights, which are essential for powering networks and meeting consumer demand for wireless services.
The CTIA report also mentioned that the significant spending on spectrum and infrastructure over the past decade has enabled the wireless industry to provide services to hundreds of millions of consumers across the US. This has resulted in nearly $9.5 trillion in gross output, $5.4 trillion in GDP, and an average of over 3 million jobs annually. In 2020 alone, the industry generated more than $1.3 trillion in gross output, $825 billion in GDP, and supported close to 4.5 million jobs in the U.S. economy.
Also read: Retirement Stock Portfolio: 7 Safe Dividend Stocks To Invest In
As 2025 draws near, the telecommunications industry is evolving rapidly, driven by a mix of challenges and opportunities that will influence its future path. Rapid technological advancements, rising consumer demand for faster and higher-quality internet, and ongoing shifts in the business landscape contribute to the sector’s dynamic nature. Analysts suggested that while predicting the future always carries uncertainties, it is clear that groundbreaking technologies, particularly artificial intelligence, will play a transformative role in the telecommunications industry. Simultaneously, societal factors such as the climate crisis, demographic changes, and geopolitical challenges will compel operators to innovate and adapt at a faster pace to stay competitive. Jelena Trivan, CEO of Mtel, also discussed artificial intelligence during an interview with Bloomberg. Here are some of her comments:
“In telecommunications future, AI will play an important role in the industry transformation. It will enable a more efficient data processing, network optimization, and improvement of the customer experience. Customer support automation, through chatbots and virtual assistants, will reduce waiting time and increase customer experience. Also, AI will help in predicting and resolving network problems before they reach critical level, by which the reliability of the services will be increased. With introduction of modern communication tools, we will provide for personalized offers for the customers, customized to their needs and habits, and our business processes will become even faster and more efficient.”
Telecom stocks have been delivering impressive returns this year, driven by the sector’s significant economic contribution and promising outlook. In 2024, the telecom industry has outperformed the broader market. The Telecom Select Industry Index, which measures the performance of stocks within the market’s Total Market Index in sub-industries such as Alternative Carriers, Communications Equipment, Integrated Telecom Services, and Wireless Telecom Services, has gained over 33% year-to-date, surpassing the market’s 24% return.
Alongside their impressive returns, telecom stocks are recognized for providing reliable dividend income. Janus Henderson’s annual dividend report revealed that these stocks distributed $73.7 billion in dividends in 2023, growing from $73.2 billion in 2022. In this article, we will take a look at some of the best dividend stocks from the telecom sector.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and selected stocks that belong to the telecom sector or provide services in the industry and pay dividends to shareholders. From the resultant list, we picked 10 stocks with the highest number of hedge fund investors and ranked them in ascending order of hedge funds’ sentiment towards them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A smiling customer receiving customer contact center solutions on their smartphone.
Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 57
Verizon Communications Inc. (NYSE:VZ) is one of the largest companies in the telecom sector. The company offers services in communications, technology, information, and entertainment. In 2023, the company faced challenges in its consumer business, gaining wireless subscribers at a slower pace than its peers. Its smaller consumer wireline segment, which offers broadband services, also experienced stagnation, largely due to a competitive promotional landscape. In addition, macroeconomic pressures hindered the growth of its business wireless and wireline divisions as companies scaled back spending on telecom upgrades. However, during the first nine months of 2024, Verizon’s consumer revenue increased by 0.9% year over year, while business revenue declined by 2.1%, resulting in overall revenue growth of 0.3%. The recovery in the consumer segment was driven by localized incentives and marketing, and the completion of its strategic plans, which also includes its latest acquisitions.
Third Point Management also highlighted the company’s acquisition in its Q3 2024 investor letter. Here is what the firm said:
“While some economic activity has been showing signs of slowing, the defensive composition of the current high yield market with a high mix of higher quality credit and short duration has let the rates tailwind overwhelm such concerns. The lowest quality sectors of the market have performed best, fueled by both soft/no landing expectations, as well as two positive events in the beleaguered telecom space. Telecom/cable have been poor performers year to date due to overhang from the growth of FWA (aka “wireless cable”) and increased fiber building, however the sector re-rated materially on two deals. Second, Verizon Communications Inc. (NYSE:VZ) announced a deal to acquire Frontier Communications (FYBR), a transaction which the fund benefited from by virtue of its investment in FYBR debt. This transaction, aimed at increasing’s VZ fiber footprint, has led to broad revaluation of fiber retail networks that we think is appropriate. While we continue to expect to see FWA rapidly erode non-upgraded cable and especially copper’s share of the low-end broadband market, the VZ deal underscores the value of the higher end footprint.”
In the third quarter of 2024, Verizon Communications Inc. (NYSE:VZ) posted revenue of $33.3 billion, showing a slight decline of 0.1% compared to the same period the previous year. Wireless revenue rose to $19.8 billion, representing a 2.7% increase year-over-year. Moreover, the company recorded 389,000 net broadband additions, continuing its streak of over 375,000 net additions for the ninth consecutive quarter.
Verizon Communications Inc. (NYSE:VZ) boasts a robust cash position, solidifying its reputation as a dependable dividend payer. During the first nine months of the year, the company generated $26.5 billion in operating cash flow and reported a free cash flow of $14.5 billion. With 18 consecutive years of dividend growth, Verizon has demonstrated its commitment to rewarding shareholders. On December 5, the company announced a quarterly dividend of $0.6775 per share, unchanged from the previous payout. The stock supports a dividend yield of 6.78%, as of December 19.
Of the 900 hedge funds tracked by Insider Monkey at the end of Q3 2024, 57 funds held stakes in Verizon Communications Inc. (NYSE:VZ), compared with 67 in the previous quarter. These stakes have a consolidated value of more than $3.2 billion.
Overall VZ ranks 6th on our list of the best telecom dividend stocks to buy for 2024. While we acknowledge the potential of VZ as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than VZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
