By Ben Reynolds, Sure Dividend
It is essentially impossible for a new telecom company to build a network with the necessary scale to compete with the established industry giants. This gives the current leaders a wide economic moat and a durable competitive advantage.
During the last recession AT&T (T) posted annual earnings-per-share results of $2.76, $2.16, $2.12 and $2.29 for 2007 through 2010. The company remained highly profitable each year of the recession but experienced a minor dip in earnings-per-share in 2009.
AT&T’s major growth catalyst going forward is media content, driven by the $85 billion acquisition of Time Warner, which owns multiple media brands, including: TNT, TBS, CNN, and HBO. On May 27th, AT&T launched streaming platform HBO Max; the new platform is a critical step for AT&T to keep up in the streaming wars.
Time Warner also owns a movie studio and sports rights across the NFL, NBA, MLB, and NCAA. Another promising growth catalyst is 5G rollout. AT&T continues to expand 5G to more cities around the country, and now covers 179 million people in 355 U.S. markets.
Our fair value estimate for AT&T is a price-to-earnings ratio of 12.0, which means valuation expansion could boost future shareholder returns by approximately 5.1% per year over the next five years. Including the 6.8% dividend yield and 4% expected annual earnings-per-share growth, expected returns could reach 15.9% over the next five years.
One of Verizon’s (VZ) key competitive advantages is that it is often considered the best wireless carrier in the U.S. This is evident by the company’s wireless net additions and very low churn rate. This reliable service allows Verizon to maintain its customer base as well as give the company an opportunity to move customers to higher-priced plans.
Verizon also ranks highly in terms of recession resilience. It
