Analysts give these telecom dividend stocks the green light.
The telecommunications sector isn’t typically the first place investors look for high-flying growth stocks. However, telecom stocks can be great sources of long-term upside and reliable dividend yields in an uncertain market. Many telecom stocks have consistent, predictable earnings and pay reliable quarterly dividends. Telecom stocks often trade at very reasonable valuations, making them attractive defensive plays during periods of market volatility. In addition, a number of telecom stocks are finally rolling out 5G global networks after years of heavy upgrade investments. Here are seven telecom stocks that the Morningstar analyst team recommends that have at least a 3% dividend yield.
Verizon Communications Inc. (ticker: VZ)
Verizon Communications is the largest U.S. wireless carrier. Analyst Michael Hodel says Verizon may have spooked some investors when it warned that wireless growth slowed in March and April. However, he says Verizon has successfully executed promotional efforts to maintain modest subscriber growth while avoiding pricing wars that could eat into profitability. Verizon reported 9.5% wireless service revenue growth in the first quarter over the prior-year quarter, and Hodel says the company’s 194,000 net fixed-wireless broadband customer additions were also impressive. Verizon pays a 5.2% dividend. Morningstar has a “buy” rating and $59 fair value estimate for VZ stock, which closed at $49.15 on June 15.
AT&T Inc. (T)
AT&T is a diversified U.S. telecommunications and technology company. Earlier this year, AT&T received $40.4 billion in cash as part of the spinoff of its WarnerMedia assets to Warner Bros. Discovery Inc. (WBD). After adjusting for the spinoff, AT&T’s stock is up 9% for the year as of June 15. Hodel says the company’s strategic positioning and network investment strategy will improve revenue and profit growth in the next several years. AT&T’s updated post-spin dividend yield is 5.7%. Morningstar has a “buy” rating and $25 fair value estimate for T stock, which closed at $19.44 on June 15.
Deutsche Telekom AG (DTEGY)
Deutsche Telekom is the leading telecom provider in Germany. Analyst Javier Correonero says Deutsche Telekom investors will benefit from the company’s roughly 50% ownership stake in T-Mobile US Inc. (TMUS) following T-Mobile’s acquisition of Sprint, a deal he says should improve the U.S. wireless pricing environment. The T-Mobile stake represents about 60% of Deutsche Telekom’s total earnings before interest, taxes, depreciation and amortization, or EBITDA. Correonero says Deutsche Telekom is also successfully migrating German customers to faster broadband speeds. Deutsche Telekom has a 3.7% dividend yield. Morningstar has a “buy” rating and $24 fair value estimate for DTEGY stock, which closed at $18.95 on June 15.
Orange SA (ORAN)
Orange is the leading telecom provider in France. Correonero says Orange has a simple strategy in France that involves maintaining market share in mobile and fixed markets while cutting costs to offset potential pricing pressures. In addition, he says, Orange’s fiber optics investments will improve unit economics over time. Orange is struggling with subscriber losses in Spain, but operations in Africa and the Middle East provide the company with significant exposure to developing countries and customers with growing disposable incomes. Orange pays a 6.7% dividend. Morningstar has a “buy” rating and $14.50 fair value estimate for ORAN stock, which had a closing price of $11.36 on June 15.
Rogers Communications Inc. (RCI)
Rogers Communications is one of the three largest national wireless carriers in Canada. The company has also announced a CA$20 billion ($15.5 billion) merger with Shaw Communications Inc. (SJR), but Canada’s Competition Bureau has opposed the deal on antitrust grounds. Rogers has said it is committed to making whatever concessions are necessary to complete the deal, but analyst Matthew Dolgin projects only a 50% chance the Shaw deal will close as it stands. Fortunately, he says, Rogers shares are undervalued with or without Shaw. Rogers pays a 3.4% dividend. Morningstar has a “buy” rating and $56 fair value estimate for RCI stock, which closed at $46.31 on June 15.
Telenor ASA (TELNY)
Telenor is the leading telecom provider in Norway. Like many other telecommunication companies, Telenor has a mature business and generates modest growth, Correonero says. However, he adds that the company’s free cash flow levels are impressive, and its early expansion into emerging markets gives the company a geographically diverse business. Correonero says Asia is Telenor’s main growth driver, but Asian growth is slowing as markets like Thailand and Malaysia become saturated. Fortunately, Bangladesh sales were still up 5% in first-quarter results. Telenor pays a 7.9% dividend. Morningstar has a “buy” rating and $17 fair value estimate for TELNY stock, which closed at $12.81 on June 15.
Lumen Technologies Inc. (LUMN)
Lumen Technologies is a U.S. telecom company that changed its name from CenturyLink in 2020. Lumen cut its dividend by half in 2019 after repeatedly telling shareholders it wouldn’t do that. The stock currently pays a 9.4% dividend, the highest yield of any stock on this list. However, revenue has been steadily falling since 2018, and investors are understandably concerned about another dividend cut. Dolgin says the stock is “materially undervalued” for investors willing to wait out Lumen’s planned asset sales in 2022. Morningstar has a “buy” rating and $16 fair value estimate for LUMN stock, which closed at $10.50 on June 15.
7 promising telecom stocks that pay hefty dividends:
— Verizon Communications Inc. (VZ)
— AT&T Inc. (T)
— Deutsche Telekom AG (DTEGY)
— Orange SA (ORAN)
— Rogers Communications Inc. (RCI)
— Telenor ASA (TELNY)
— Lumen Technologies Inc. (LUMN)
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7 Top Telecom Stocks to Buy With Healthy Dividends originally appeared on usnews.com
Update 06/16/22: This story was previously published at an earlier date and has been updated with new information.
