While analysts debate what is next for telecom stocks and whether a global recession is around the corner, I am in the cautiously optimistic bull camp for the coming months. Consider that Wall Street regards telecoms’ revenues to be relatively safe during an economic slowdown, since not many people would give up their phone account in a slowdown, unless their personal economic situation got really bad.
But creating growth opportunities in a mature industry like telecommunication services still requires proactive management. And that’s what sets these three telecom stocks apart from the rest. The upcoming 5G revolution should also be a strong catalyst for their stock prices.
With that said, here’s a deeper look into what makes these three telecoms standout stocks to buy for 2019 and beyond.
Vodafone, the global telecoms giant headquartered in London, currently offers a dividend yield of almost 9%. The high payout is in part due to the company’s history of returning a big chunk of earnings to shareholders, but it is also due to the fall in VOD stock during 2018. After reaching a high of $32.75 in January 2018, Vodafone shares saw a low of $18.45 in October and investor sentiment remained weak throughout the year.
In recent years, Vodafone has pursued an ambitious acquisition strategy and invested in developing its network. Now VOD’s management is working to integrate its various mergers and cut costs at the same time. The group aims to save over $1 billion in continental Europe alone. And that should help toward the double-digit profit growth VOD stock analysts are expecting from 2020 onwards.
Organic growth in many emerging markets, including the Middle East, Asia Pacific and Africa, remains high, providing a tailwind in the near future. In 2018, fluctuating currency rates have meant the British pound has suffered considerably while the uncertainty over Brexit, the U.K.’s proposed exit from the European Union (E.U.), has taken some of the shine off the performance in these regions. However, 2019 will possibly see a different story, as the markets have already priced the Brexit worries into the share price. Markets are always forward looking and the U.K.-based stocks are likely to move away from this political discourse.
Vodafone’s investment prospects are improving and I feel price of VOD stock now presents an attractive value as well as impressive total return potential, all of which are fueled by its high dividend yield. VOD stock may continue to be volatile, yet as a buy-and-hold investor, you would collect over 9% in dividend payments, beating returns on many other investments.
Verizon Communications (VZ)
Over the past year, Verizon Communications, the largest wireless carrier in the U.S., is up almost 10%. The relatively strong recent performance of VZ stock has been based on its healthy fundamentals. Verizon’s most recent financial results have benefited from cost savings measures as well as lower taxes — two factors that have helped the VZ stock price.
In 2018, it covered about 300 million U.S. residents who showed “strong loyalty” toward the company. On the 5G front, where Verizon is aiming to be the leader, VZ’s organic earnings growth is expected to materialize in 2020 onwards … after the full mobile 5G launch in 2019. The benefits of 5G will include much faster download speeds, more data capacity — a must for the Internet of Things (IoT) devices — and lower latency or very little lag in mobile applications, which should have a positive impact on the development of online gaming as well as self-driving cars.
In the 5G race and the battle for bandwith, global and city governments are beginning to auction off lucrative airwave rights. And Verizon is currently working with major U.S. cities to secure these rights. Verizon’s loyal customers coupled with VZ management’s planning will drive the 5G growth in the near future, too.
Finally, Verizon has a history of increasing dividends and its current dividend yield is over 4%. This is yet another important reason why I believe VZ stock belongs in a capital-growth portfolio. On Nov. 1, 2018, Verizon paid a quarterly common stock dividend of 60.25 cents per share; the next dividend payment is expected in early February.
VZ stock has a strong story and a clean balance sheet with robust cash flows; thus, it remains on of the more appealing long-term growth stocks to buy on a fundamental basis.
Amid all the recent market volatility, I regard AT&T as one of the key telecom stocks to buy for value and stability. Over the past few years, T stock has lagged behind the broader market overall; yet, the company has a strong brand and wireless infrastructure — two factors that are likely to make it a dominant player in the 5G sphere.
The new 5G technology will boost productivity and growth globally. 5G will also be at the center of the infrastructure for building smart cities. Coupled with a price-to-earnings ratio of about 15x, T stock deserves further due diligence in the tech world that is getting ready for 5G dominance. In December 2018, AT&T launched its own 5G network in over a dozen U.S. cities.
In June 2018, a federal court approved the merger of AT&T’s $85 billion acquisition of Time Warner — a deal that has turned AT&T in a media giant. This merger has been weighing on AT&T for some time; however, 2019 should see the question marks slowly disappear. I expect the media business, including the HBO platform, to contribute to the earnings growth. The merger should also enable AT&T to increase its data-driven advertising revenues.
In addition to the company’s strong earnings power through telecom and media-related operations, like VOD and VZ stock, T stock also offers a strong dividend yield at over 6%, which is a big attraction for many long-term investors seeking strong stocks to buy for 2019 and beyond.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.