Verizon Communications Inc. (VZ), AT&T Inc. (T): 4 Reasons the Run in This Stock Should Continue

The safety of Verizon’s dividend is the fourth reason the stock should do well. Since neither Sprint Nextel Corporation (NYSE:S) nor T-Mobile pay a dividend, we can eliminate them immediately. Looking at core free cash flow (net income + depreciation – capital expenditures), we see that AT&T’s free cash flow payout ratio was 61.78% last quarter. Given that Verizon’s free cash flow payout was just 27.41% using this same metric, I don’t see why investors would worry about Verizon Communications Inc. (NYSE:VZ)’s slightly lower yield.

Don’t trust your gut, do the research
The bottom line is, if I trusted my gut instinct and sold Verizon because I thought the stock had risen to fast, I would have been wrong. Even today the shares yield nearly 4% compared to about 4.8% at AT&T Inc. (NYSE:T). The difference is in these two companies growth rates. Analysts are expecting 9.25% EPS growth from Verizon in the next few years, versus just 5.35% from AT&T.

Though Sprint’s market position may improve with either a Softbank or DISH Network Corp. (NASDAQ:DISH) investment, they will still be playing catch-up to AT&T and Verizon. Where T-Mobile is concerned, they are essentially in the same position as Sprint. The bottom line is, if you want a market leader, with significant free cash flow, and an attractive yield, Verizon is still the best in its industry.

Chad Henage owns shares of Verizon Communications. The Motley Fool has no position in any of the stocks mentioned.

The article 4 Reasons the Run in This Stock Should Continue originally appeared on Fool.com.

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