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2 Dividend Stocks that Shouldn’t Be Neglected

AT&T (T) and Verizon (VZ)  are the two largest telecommunication firms in the United States.

They’ve been doubted lately due to restructuring procedures, and an expensive 5G push, but I remain bullish on both stocks.

AT&T

AT&T is in a restructuring phase where it’s spinning off all of its media assets into a separate entity, jointly owned by Discovery (DISCA). AT&T will retain 71% of the entity and receive $43 billion in cash, which is expected to be used to pay off debt, before embarking on a 5G push.

The firm itself has admitted that a smaller company will most likely equate to smaller dividends, but investors are getting carried away when they think AT&T won’t be a lucrative dividend-paying stock anymore.

AT&T remains at the pinnacle of the dividend aristocrat list, with UBS recently including the stock in its top 20 value stocks to buy list, due to its current dividend-paying capacity.

Adding to its 7.6% yield is a yield-to-payout ratio that’s 21.1% higher than its five-year average, while it also has stacked up $43 billion in cash from operations.

There’s no doubt that AT&T will spend more of its cash on growing the business in upcoming years, but neglecting the stock based on that is radical. AT&T will remain a top dividend play for years to come.

Wall Street thinks the stock is a Moderate Buy, with an average price target of $32.33. There have been five Buy ratings on the stock, five Hold ratings, and one Sell rating.

Verizon

Verizon’s restructuring has differed slightly. The telecom giant recently sold its Yahoo assets for $5 billion, and it’s anticipated that the capital will be used for its 5G push.

The company has performed really well over the past year with a year-over-year growth in revenue and EBITDA of 2.4% and 2.7%, respectively.

The recent year’s performance has opened up a lucrative gap for Verizon to increase its dividend payments. The company has produced eight consecutive years of dividend increases, and with its payout ratio trading at 12.1% below its five-year average, we could certainly anticipate its 4.6% yield to be bolstered sooner rather than later.

Verizon also holds a decent amount of value. The stock’s price-to-earnings ratio is trading at a 13.7% discount to its five-year average.

Wall Street remains positive on Verizon, with the stock being rated as a Moderate Buy, based on five Buys, and four Holds. The average Verizon price target of $62.75 implies 16.1% upside potential.

Concluding Thoughts

Both of these stocks will benefit from a changing market.

Investors have overlooked them due to restructuring fears and anticipation of a 5G war, which could translate into depleted balance sheets.

Disclosure: At the time of publication, Steve Gray Booyens had a long position in T and VZ.

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Steve Gray Booyens
Steve Booyens writes analysis articles about stocks and finance for TipRanks. He co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Currently, Steve is working towards his Ph.D. in Finance, in which he's attempting to challenge the renowned Fama-French 4-factor pricing model by incorporating ESG factors. Furthermore, Steve spends much of his time advising investors on emerging market risk, factor investing, portfolio diversification, and asset class construction. Collectively, Steve's knowledge provides a blend of high-level financial theory and practical investment ideas.