Vodafone Group Plc (ADR) (VOD), Verizon Communications Inc. (VZ): Are Smart Phones the 21st Century Addiction?

Verizon Communications Inc. (NYSE:VZ) is becoming dependent on their ownership stake in Verizon Wireless to fund its growing dividend. Verizon’s landline business is a dominant player in the industry, but like the PC industry, the pie as a whole is shrinking as consumers cut the cord. Verizon’s broadband segment is growing at a conservative clip, but it isn’t enough to offset the landline business’s slowing revenue and growing Verizon’s dividend at the same time.

Shifting landscape

Increased competition will put pressure on monthly bill prices; however, record low churn rates at both AT&T and Verizon have shown the stickiness of their products. Features like auto pay that is linked to a bank account or credit card makes it easy to pay the bill without necessarily having sticker shock, while also making it seem inconvenient to disconnect the auto pay system they have and set it up with a new carrier.

Foolish Bottom Line

The mobile phone industry has got us all hooked on being connected to each other and the internet all the time. This need of ours is what keeps us paying large monthly bills to our carriers, and makes these carrier’s networks so valuable. With huge capital costs, barriers to entry are high, and this keeps operating margins at AT&T and Verizon high. Both of these phone companies will provide slow and steady growth, as well as provide an outsized dividend near 5%.

Wes Patoka owns shares of Verizon Communications and AT&T. The Motley Fool recommends Vodafone.

The article Are Smart Phones the 21st Century Addiction? originally appeared on Fool.com and is written by Wes Patoka.

Wes is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.