The 2 Things AT&T Inc. (T) Does Better Than Its Rival

In the telecommunication field, cash flow might be the most important metric. Since these companies all have significant depreciation allowances, their net income doesn’t tell the whole story. This leads us to the second way that AT&T beat Verizon in the last year; they generated better free cash flow growth. AT&T produced 34.70% more free cash flow in the last 12 months versus last year. Verizon by comparison, generated 13.11% more free cash flow. While both performances are good, AT&T’s outperformance was very important for shareholders. This greater free cash flow not only allowed for better share repurchases, but it improved the company’s dividend coverage as well.

Telecommunication stocks have long been bought for their yields. With CenturyLink paying a yield over 7%, and Frontier paying just under 9%, there is no question these payouts get a lot of attention. Both of these companies generate significant cash that helps them afford their payouts. In fact, CenturyLink’s free cash flow payout ratio is just 38.70%, and Frontier’s payout is down to 50.78%. Verizon’s yield of 4.75%, and AT&T’s yield of 5.21%, might not seem as attractive as the others; the difference is they both have huge and growing wireless divisions. CenturyLink and Frontier are in a race to replace landline losses with higher growth video and broadband services, but neither has a wireless presence. With Verizon’s payout ratio at just 34.16%, AT&T can’t match up with a ratio of 51.96%. However, AT&T proved over the last year that they could generate more free cash flow than their rival, and they could repurchase more shares. In the past, Verizon was the clear winner between the two, but if AT&T has another year like 2012, these roles could be reversed. Investors should keep an eye on both of these telecom titans, and you can do so by adding T and VZ to your personalized Watchlist today.

The article The 2 Things This Company Does Better Than Its Rival originally appeared on Fool.com and is written by Chad Henage.

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