The usage of wireless networks is growing year over year and initially it started with voice and then data and now heavy data such as videos, streaming, chat, social media, online games and so on. Telecom companies have to invest constantly to improve their networks from 2G, 3G, 4G, LTE and so on. The demand for wireless network from cell phones, smartphones and tablets keeps growing with additional requirement to increase the speed for better user experience. By 2020, nobody knows what wireless technology standards will be, however only leaders in the Telecom services industry can invest and grow with the adoption of new technology.
For part of the analysis, I have considered the Verizon Communications Inc (VZ), AT&T Inc (T), Sprint Nextel Corporation (S), Telephone & Data Systems (TDS) and MetroPCS Communications Inc (PCS) companies. The following are the four key metrics that I considered for the comparison to determine the company's financial strength, growth and dividend returns for the shareholders.
Return on Equity (ROE): This is calculated by dividing net income of a company by their total shareholder equity. Generally, a higher return on equity means company is highly competitive and has ability to run profitable business.
Total Debt/Equity: This is a key metric for any company and lower the number, the less debt the company has compared with equity. For telecom companies, it is common to have large amounts of capital expenditure and will usually have substantial debt levels. However, lower the Debt/Equity better the company position.
5-Year Average Dividend Yield: This metric provides a clear indication of the financial strength of a company, its earnings potential and its ability to pay out earnings to its shareholders.
Dividend Payout Ratio: This is the ratio the total yearly dividend amount to EPS.
Return on Equity
5 Year Average Dividend Yield
Dividend Payout Ratio
Based on these metrics, Sprint and MetroPCS does not provide regular dividend to its shareholders. Sprint's Return on Equity and Total Debt/Equity are not favourable whereas MetroPCS has very high Total Debt/Equity. Even though TDS has 26% divident payout ratio with 5-year average dividend yield of 1.30%, its ability to invest in Research & Development (R&D) to adopt new technology is still questionable.
Overall, it is clear the Verizon Communications Inc stands out to be the best telecom company followed by AT&T Inc for long-term investments.
When you look at the telecom industry, Verizon and AT&T seem to offer better returns for the long-term investors because of their ability to improve the network based on technology and consumer needs. Moreover, expansion to other geographies and expansion of their leadership on other segments such as televisions, content/video streaming and so on, will move these stock prices higher and higher.
Here is the brief overview of Verizon Communications Inc and AT&T Inc :
Verizon Communications Inc
Verizon Communications Inc. provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. It operates in two segments, Verizon Wireless and Wireline. Verizon has a market cap of $110.81 billion. Verizon is currently trading around $38.87 with a 52-week range of $32.28 to $40.48. Verizon currently pays approximately 48 to 50 cents per share as a quarterly dividend to its shareholders.
AT&T Inc., together with its subsidiaries, provides telecommunications services to consumers, businesses, and other providers worldwide. The company's Wireless segment offers wireless voice and data communication services, such as local wireless communications services, long-distance services, and roaming services. AT&T has a market cap of $183.08 billion. AT&T is currently trading around $30.88 with a 52-week range of $27.27 to $31.94. AT&T currently pays approximately 41 to 43 cents per share as a quarterly dividend to its shareholders.
Disclosure: Disclosure: I have no positions in any stocks mentioned, but I may initiate either short or long position in the above mentioned stocks over the next 72 hours.
Disclaimer: Some of the data is sourced from Yahoo Finance and Google Finance.
I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to the investor to make the correct decision after necessary research.