In the digital world, telecom services keep us talking, watching, and browsing. These interactions form the backbone of modern living, and our data appetite will likely surge even higher in the next ten years, asserts Rida Morwa, income expert and editor of High Dividend Opportunities.
Meanwhile, 5G and fiber are generational transformations in the telecom industry, but these have come at substantial expenses over the years. These are meaningful upgrades over the long term. Based on FY 2024 guidance, capex is materially shrinking, and the investments have started paying off in the form of growing free cash flow.
Verizon Communications (VZ) reported its fourth quarter and full-year results in January, smashing Wall Street’s expectations and its own guidance. It reported full-year adjusted EPS of $4.71 and ended the financial year with $150.7 billion net debt at a 2.6x leverage ratio (net unsecured debt to adjusted EBITDA).
Notably, only $3.6 billion of this unsecured debt matures in 2024, giving VZ adequate legroom to execute its strategic priorities, which include debt reduction and dividend raises.The firm delivered its 17th consecutive annual dividend raise in September.
Guidance for FY 2024 projects 2-5% YoY revenue growth, 1-3% EBITDA growth, and capital spending between $17-17.5 billion (down 8.2% YoY). VZ’s projected adjusted EPS for 2024 is between $4.5-4.7. Assuming a 3% payment raise in 2024, the new dividend will enjoy a 59% payout ratio, indicating attractive prospects for growing payouts to shareholders.
AT&T (T) also reported its fourth quarter and full-year financial results in January, with metrics aligned with guidance and expectations. The company reported $16.8 billion FCF (up by $2.6 billion YoY), beating its guidance range. Cash flow from operating activities for Q4 was $11.4 billion, and $38.3 billion for 2023 (up $2.5 billion YoY).
Higher debt levels in the telecom industry have been the most significant concern among investors, but AT&T is well-positioned to retire debt from its expanding profitability.
For FY 2024, the company projects adjusted EPS between $2.15 - 2.25/share; this guidance metric still places the current dividend payment at a 50% sustainable payout ratio. Based on management-guided financial projections for 2024, we feel confident about AT&T’s dividend sustainability and consider the stock a steal at 7.8x forward PE.
Overall, in my view, both AT&T and Verizon are bargain-priced dividend holdings that are suitable for a defensive retirement portfolio.
