These two U.S. telecom companies continue to use acquisitions to expand the profitability of their online and mobile businesses. That strategy adds risk, but it should also let them continue to expand their dividends.
AT&T INC. $33(New York symbol T; Income-Growth Dividend Portfolio, Utilities sector; Shares outstanding: 6.1 billion; Market cap: $201.3 billion; Dividend yield: 5.9%; Dividend Sustainability Rating: Highest; www.att. com) is the largest wireless carrier in the U.S. It also offers traditional phone and satellite TV services.
With the February 2017 payment, AT&T increased its quarterly dividend by 2.1%, to $0.49 a share from $0.48. The new annual rate is $1.96 and yields a high 5.9%.
The company continues to make progress with its acquisition of Time Warner Inc. (New York symbol TWX). That communications giant owns cable channels HBO and TBS, and the Warner Brothers movie studio. The company plans to use Time Warner’s exclusive content to attract more customers who want to stream video on their smartphones and other mobile devices.
AT&T will pay for the Time Warner deal with 50% cash and 50% in shares. If you include Time Warner’s debt, the total value of the takeover is $108.7 billion. Following the purchase, Time Warner investors will own 15% of the combined company. AT&T expects to complete the deal by the end of 2017.
The acquisition will increase AT&T’s long-term debt by roughly $40 billion. It was $154.7 billion as of September 30, 2017, or a high 77% of the company’s market cap. However, eliminating overlapping operations and other benefits should save AT&T $1 billion annually.
Meantime, hurricane damage to its networks in Texas and Florida, as well as the disruption caused by earthquakes in Mexico, will cut AT&T’s earnings for the third quarter of 2017 by $0.02 a share. To put that in context, it earned $0.74 a share in the third quarter, unchanged from a year ago.
Those natural disasters have also hurt demand for its video services. AT&T now expects the net number of its U.S. video subscribers declined by 89,000 in the third quarter. It had 25.1 million users as of September 30, 2017.
Despite those setbacks, the company still expects its fullyear earnings will rise by about 3%, to $2.93 a share. The stock trades at just 11.3 times that forecast.
AT&T is a buy.
VERIZON COMMUNICATIONS INC. $49 (New York symbol VZ; Income- Growth Dividend Portfolio, Utilities sector, Shares outstanding: 4.1 billion; Market cap: $200.9 billion; Dividend yield: 4.8%; Dividend Sustainability Rating: Highest; www.verizon.com) has 115.3 million wireless users, 13.1 million phone customers and 15.5 million Internet and TV subscribers.
With the November 2017 payment, Verizon increased its quarterly dividend by 2.2%, to $0.59 a share from $0.5775. The new annual rate of $2.36 yields a high 4.8%.
In the quarter ended September 30, 2017, Verizon earned $3.62 billion, or $0.89 a share. That’s unchanged from a year earlier. If you exclude acquisition costs and other unusual items, the company earned $0.98 a share in the latest quarter. Revenue increased 2.5%, to $31.7 billion from $30.9 billion.
Oath, the name of Verizon’s media business following the combination of AOL and Yahoo, contributed $2.0 billion to the company’s third quarter revenue. That’s ahead of Verizon’s internal forecast.
The company added to its fibre network infrastructure in August with the acquisition of the Chicago-area assets of 9WideOpenWest, Inc. (New York symbol WOW). Verizon paid $225 million and aims to close the deal in early 2018.
The company will likely earn $3.76 a share in 2017, and the stock trades at a moderate 13.0 times that forecast.
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