The telecom industry has advanced rapidly over the past few years. Moreover, the global telecom market is expected to grow at a CAGR of 6% until 2026. Rising spending on the deployment of 5G infrastructures amid the growing inclination toward next-generation technologies and smartphone devices, soaring demand for high-speed data connectivity, and the increasing demand for managed services are expected to drive growth.

For 2022, the number of smartphone users in the United States is estimated to reach a whopping 307 million, while it’s expected to surpass 350 million by 2040.

Such robust demand is expected to drive solid growth in the telecom industry. Investors’ interest in telecom stocks is evident from the SPDR S&P Telecom ETF’s (XTL) 3.2% gains over the past month.

Given the backdrop, investors might consider buying fundamentally sound telecom stocks Verizon Communications Inc. (VZ) and AT&T Inc. (T) to generate stable income in the fourth quarter. These stocks pay hefty dividends.

Verizon Communications Inc. (VZ)

VZ and its subsidiaries offer communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. Its segments are Consumer and Business. 

On December 8, VZ announced the extension of its network virtualization efforts with the addition of the first Ericsson virtualized cell site (also referred to as Ericsson Cloud RAN). The company expects this to help VZ rapidly respond to customers’ varied latency and computing needs and provides greater flexibility and agility in the introduction of new products and services.

VZ has paid dividends for 22 consecutive years. Over the last five years, VZ’s dividend payouts have grown at 2.1% CAGR. While VZ’s four-year average dividend yield is 6.80%, its current dividend translates to a 7.04% yield.

VZ’s operating revenues came in at $34.24 billion for the third quarter that ended September 30, 2022, up 4% year-over-year. Moreover, its wireless equipment revenues came in at $6.58 billion, up 22.8% year-over-year. Also, its total assets came in at $375.09 billion for the period ended September 30, 2022, compared to $366.60 billion for the period ended December 31, 2021.

VZ’s forward EV/EBITDA of 6.96x is 15% lower than the industry average of 8.18x, while its forward Price/Sales of 1.14x is 7.2% lower than the industry average of 1.23x.

VZ’s revenue is expected to increase 2.5% year-over-year to $136.99 billion in 2022. Its EPS is expected to increase by 2.2% per annum for the next five years. It surpassed EPS estimates in three out of four trailing quarters. VZ’s shares have lost marginally intraday to close the last trading session at $37.10.

VZ’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

VZ has a B grade for Growth and Stability. In the Telecom - Domestic industry, it is ranked #3 out of 19 stocks. Click here for the additional POWR Ratings for Momentum, Sentiment, Value, and Quality for VZ.

AT&T Inc. (T)

T provides telecommunications, media, and technical services worldwide. It operates through two segments, namely Communications; and Latin America.

On December 5, 2022, T and Delaware County, Indiana, announced plans for a $2.30 million project to construct a cutting-edge network and bring T’s FiberSM to about 1,250 customer locations in various sections of the county. T’s consumer base is expected to boost under this project substantially.

T has paid dividends for 38 consecutive years. While T’s four-year average dividend yield is 6.80%, its current dividend translates to a 5.81% yield.

T’s equipment revenues came in at $5.31 billion for the third quarter that ended September 30, 2022, up 4.6% year-over-year. Its net income increased marginally year-over-year to $5.98 billion. Also, its EPS increased marginally year-over-year to $0.83.

T’s forward EV/EBITDA of 7.45x is 8.9% lower than the industry average of 8.18x. Its forward Price/Sales of 1.09x is 11.4% lower than the industry average of 1.23x.

Over the past year, the stock has gained 44.7% to close the last trading session at $19.12.

T has an overall B rating, equating to a Buy in our POWR Ratings system. It also has a B grade for Value, Sentiment, and Quality. T is ranked #5 of 19 stocks in the same industry.

Click here for the additional POWR Ratings for Stability, Growth, and Momentum for T.

VZ shares were trading at $37.53 per share on Friday afternoon, up $0.43 (+1.16%). Year-to-date, VZ has declined -23.82%, versus a -15.71% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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