AT&T (NYSE:T), Verizon (NYSE:VZ), and Centurylink (NYSE:CTL) is the highest yielding stocks large cap stocks with the former the highest yielding in the Dow Jones Industrial Average at 5.25% per annum. VZ and CTL have yields of 4.2% and 5.4% respectively. The rock solid names with the Ma Bell legacies have been a staple of orphans, widows and dividend investors for quite some time. But do they belong in a dividend investor's portfolio companies of high quality high yielding name or does it pose risk to capital or dwindling income or a dropped call for this crowd.
For cash flow companies using substantial amounts of debt like telecom companies we look at their enterprise valuation multiples EV to EBITDA. On this basis T appears to be the most attractively valued at only 5.4 times annual EBITDA. Both VZ and CTL trade at just a hair above 6 times annual EBITDA.
Looking at all three from on projected earnings basis T and VZ both log-in with a 12.7 multiple that is well below the market average of 15. CTL is more expensive than both T, VZ and the overall market at 16.5 times earnings.
Finally, we look at valuations relative to growth rates. Over the next five years all three companies are expected to grow slower than the S&P 500 rate of 10.0% per annum. T and VZ have positive projected earnings growth at 5.0% and 6.4% per annum, indicating VZ is winning the growth rate by percentage point and a half. CTL is expected to have earnings decline.
Source: Yahoo Finance
|AT&T||Verizon||Centurylink||S&P 500 (NYSEARCA:SPY)|
|Projected Growth Rate (5-Year) Annualized||5.0%||6.4%||-2.0%||10.0%|
Summarizing the metrics above we recommend T over VZ and CTL. CTL appears as relatively more expensive and much slower growing. While VZ is a faster grower T is more favorably valued on an enterprise basis, has a larger current dividend with investors only sacrifice a modest amount of growth.
Overall we recommend dividend investors allocate towards T in favor of a more favorable valuation and higher yield.
Disclosure: The author is long T, CTL, VZ.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.