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Dividend investors often target stable sectors and industries to invest in because that can minimize the risk that there will be surprises and volatility later on. Telecom stocks, thus, can make for ideal options to consider given that their businesses provide customers with necessary services and they generate a great deal of recurring income.
Two of the biggest names in telecom are AT&T (NYSE: T) and Verizon Communications (NYSE: VZ). They also are among the most compelling dividend stocks to consider, with both offering fairly high yields. But which one is the better option for dividend investors today?
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Verizon’s yield is higher at 6%
What inevitably draws the most attention from investors when it comes to dividends is the overall yield, and Verizon has an edge here. It pays 6%, which is more than five times the S&P 500 average of just 1.1%. AT&T also offers a fairly high yield at 4.3%, but it is notably lower than Verizon’s payout.
But investors often worry that high yields aren’t sustainable, which is why stocks with high payouts don’t necessarily rise in value. In fact, that’s one of the reasons Verizon’s yield is high — its share price has declined 16% over the past five years. When that happens, its yield rises (assuming, of course, the dividend remains intact). Meanwhile, AT&T stock has risen by 11% over that same time frame.
What’s important to consider is the payout ratio, which helps to gauge just how safe a dividend is, regardless of the actual yield. AT&T is paying out approximately 37% of its earnings as dividends, while Verizon’s payout ratio is around 67%. AT&T has more of a buffer, but both payouts look to be safe.
AT&T hasn’t raised its dividend for several years
With a low payout ratio, the nagging question about AT&T stock is whether it might raise its dividend anytime soon. It hasn’t increased its payout since 2020. That means that over time, inflation has been chipping away at the dividend income AT&T has provided its shareholders with, especially with inflation being particularly high in recent years.
Verizon, on the other hand, has prided itself on continuously growing its dividend. Earlier this year, it increased its dividend by 2.5%. And over the past five years, its quarterly dividend has risen by nearly 13%. That’s not terribly impressive, as inflation has been higher over that stretch, but at the very least, it has given investors some incentive to buy and hold.
Which business is in better shape today?
Another key factor to consider when analyzing dividend stocks is the strength of their underlying businesses. A yield can look impressive, but if a company isn’t going in the right direction, there may be a dividend cut or suspension looming around the corner.
Verizon recently posted its first-quarter earnings for 2026, which were encouraging. The telecom company boasted of its postpaid phone net adds, which it says were positive in Q1 for the first time since 2013. In light of its strong results, the company raised its guidance for the year and expects that for 2026, its adjusted per-share earnings will rise between 5% and 6%.
AT&T has also been doing well, as in its Q1 results, revenue was up 2.9% and totaled $31.5 billion. Its free cash flow did, however, fall from $3.1 billion to $2.5 billion, as the company has been investing more in its fiber business.
Overall, both businesses appear to be doing well, and it’s hard to say that one is in much better shape than the other.
Which dividend stock is the better buy?
Verizon’s stock has performed better since the start of this year, rising by 16% while AT&T’s stock is up a more modest 5%. But remember, Verizon’s been struggling for a while now, and it’s just now recovering after showing signs of progress earlier in the year with encouraging quarterly results. Verizon trades at just under 10 times its expected future earnings (based on analyst expectations), whereas AT&T is at a multiple of just over 11.
All things considered, I’d go with Verizon today. Its yield is slightly higher, and although the growth in its dividend has been modest in recent years, it has at least shown a willingness to grow its payout. And with a slightly lower valuation, that clinches it. Both of these stocks are good options if you want dividend income, but I think Verizon is a more compelling buy right now.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
