Verizon, T-Mobile, and AT&T are known as the big three in the telecommunications industry. You may have already decided which company to choose when it comes to phone service, but do you know which telecom company is the smartest investment in 2024?
In this guide, we’ll analyze the pros, cons, and details of these three strains to help you make the right choice. Here’s what you need to know before you buy:
Company Profile
AT&T, Verizon, and T-Mobile are direct competitors in the US telecommunications industry. Although these companies offer similar services, they present different investment opportunities. Here is a brief overview of each company’s stocks.
Verizon
Verizon (VZ) offers technology, entertainment and information products through its subsidiaries. The company was founded in 1983 and currently operates through two segments: Verizon Consumer Group and Verizon Business Group.
Verizon is a popular mobile phone service provider with strong national brand recognition and generates more than $180,000 in after-tax profits per employee. Verizon stock is relatively affordable and offers a good dividend yield compared to industry competitors. However, Verizon has also incurred significant long-term debt over the past decade, totaling over $136 billion as of March 2024.
AT&T
AT&T (T) is another well-known telecommunications company that operates through two segments: Communications, which provides technology and data services, and Latin America, which focuses on prepaid and postpaid wireless services in Mexico, some of which it offers through its Unefon brand.
AT&T’s stock price has been historically stable. The company currently offers a dividend yield of 6.48%, above the telecommunications industry standard of 4.65%. However, AT&T isn’t expected to see significant growth in the near future, so investors shouldn’t expect a significant increase in capital.
T-Mobile
Founded in 1994, T-Mobile (TMUS) provides mobile communications services in the United States, Puerto Rico and the U.S. Virgin Islands. The company’s services include voice and messaging data plans, prepaid and postpaid plans, and wireless technologies such as smartphones and tablets.
As a slightly smaller player in a saturated market, T-Mobile has fewer marketing resources than Verizon and AT&T and has adopted less traditional marketing tactics, such as attacking competitors on social media. Thanks to this tenacity, the company is currently in a period of rapid revenue growth, making it a good fit for investors looking for a high ROI.
Comparison of telecommunications stocks
Let’s take a look at how these three stock options stack up against each other, comparing a few key factors: share price, dividends, debt, and free cash flow.
Stock Price
Below is a comparison of the 52-week price ranges for each stock as of late May 2024.
VZ: $30.14 to $43.42 T: $13.43 to $18.16 TMUS: $124.92 to $168.71
Dividends
Dividend yield is the ratio of a company’s annual dividend to its stock price. It’s not necessarily an indicator of a stock’s performance, but it gives you an idea of how much the annual dividend per share is. Below are the current dividend yields for these three telecommunications companies:
VZ: 6.8% T: 6.48% TMUS: 1.54%
In terms of cash value alone, Verizon’s annual dividend is comparable to T-Mobile’s. However, keep in mind that Verizon’s price per share is much lower, so Verizon is a better investment in terms of dividends alone.
debt
As mentioned above, Verizon has more long-term debt than the other two, with over $136 billion as of March 2024. AT&T’s long-term debt for the same period was $125.7 billion, while T-Mobile’s debt is much lower at $77.8 billion.
High debt load means a large portion of a company’s earnings must go towards paying it off, limiting free cash flow.
Free Cash Flow
Free cash flow is a measure of a company’s profits after paying its operating expenses. It’s an important factor when comparing stocks because it shows how much cash a company has available to invest in growth opportunities, achieve capital gains goals, and generate profits for shareholders.
All three have made great strides in free cash flow in recent years. Some reports suggest Verizon has shown impressive financial resilience through the first half of 2024 and expects earnings growth to continue in the second half of the year. AT&T has also outperformed expectations this year.
But T-Mobile’s low debt and rapid growth mean the stock still outperforms its competitors in terms of free cash flow.
Why T-Mobile is the best investment
Of the three options, T-Mobile appears to have the best chance of long-term returns. The company has the most manageable debt compared to its competitors, giving it more flexibility to grow earnings and continue to create value for shareholders. Many experts expect T-Mobile stock to perform better than its competitors over the long term.
That said, each of these stocks has its merits: Verizon offers a higher dividend yield than T-Mobile, and AT&T is a reliable, low-cost option for risk-averse investors. These characteristics may make them attractive choices for certain investors, but overall, T-Mobile may be the better long-term investment.
Should you invest in T-Mobile stock right now?
If you want to invest in the telecommunications industry, T-Mobile could be a smart choice. But just because it’s outperforming its competitors doesn’t mean it’s the best investment to add to your portfolio. Some of the top stocks for 2024 include Alphabet, Meta, Broadcom, and UnitedHealth, and T-Mobile isn’t on the list.
On top of that, T-Mobile stock is overpriced right now. New investors or those on a tight budget may want to wait until the price drops before buying. If T-Mobile is right for you, there’s nothing wrong with investing today, but don’t feel pressured to rush out and buy this stock right now.
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