Verizon (VZ, Financial)'s stock peaked late last year at $59 per share, and last week, it traded as low as $51 per share. That’s a 13.5% drop. AT&T (T, Financial), meanwhile, peaked in late 2019 at $34.50 per share and could be purchased earlier this month for as little as $25 per share. That’s a 27.5% plunge. This has occurred during a period when other big name stocks such as Apple (AAPL, Financial) and Microsoft (MSFT, Financial) continued higher and higher.
Of these two big telecommunications equities, AT&T seems to have the more serious issues. For example, the company has no price-earnings ratio because earnings were in the negative range this year. Typically, large investors (and even small ones) would be more pleased if stocks they held had price-earnings ratios, proving their ability to turn a profit. As a matter of fact, the five-year record of EPS growth is negative for AT&T as well. You have to wonder if the big dividend, now offering a 8.09% yield, can continue to paid at that level.
AT&T’s debt-to-equity ratio is 1.24. The debt-to-Ebitda ratio is a more concerning 4.48. The company trades at just slightly above its book value. Institutions still own about 53% of the float. The GuruFocus.com summary of the financials shows five good signs, one medium warning sign and four severe warning signs.
Although Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) have included AT&T in the Berkshire Hathaway portfolio in earlier years, the stock is no longer held there. The Omaha-based investment giant does, however, continue to hold Verizon, which now amounts to about 3.8% of its holdings – and which has also dropped significantly in price, as noted. The New York Stock Exchange listed stock trades with a current price-earnings ratio of 10. This year’s earnings per share growth in at -7%. The EPS growth rate over the past five years is -0.3%.
The dividend of $2.51 per share amounts to a 4.8% yield now that Verizon has sold off to lower levels over the past year. That the stock is trading so poorly may indicate that some investors do not believe the company will continue to pay a dividend that big.
The GuruFocus.com financials summary shows the company has having four good signs, two medium warning signs and three severe warning signs. The debt-to-equity ratio is 2.43 and the debt-to-Ebitda ratio is 3.76. The price-book ratio of 2.94 sits at a five-year low.
The fact that Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) continue to hold Verizon in the Berkshire Hathaway portfolio suggests a belief that the company will recover in strength over time. The same cannot be said of AT&T, shares of which cannot be found anywhere among the components of the world’s most watched institutional investment firm.
Before chasing what appear to be great dividend yields, investors interested in these two stocks would be wise to carefully examine the financials of each company before making any investment decisions.
