Telecom stocks are typically a little boring. Many investors consider telecom stocks to be defensive plays to purchase primarily for their dividends. As 2019 started, some investors began to increase buying in this sector due to the ongoing trade dispute between the U.S. and China. But a funny thing happened in their flight to safety: the sector actually grew in 2019.
One reason for the enthusiasm about this sector is emerging 5G technology. The benefits of 5G are only available in select cities at the moment, but the list continues to expand. And while the build out is taking a bit longer than some investors and consumers have hoped, there’s no doubt that it is coming.
But if you look more closely at some of the individual stocks in this sector, you can find reasons for optimism in 2020 that go beyond the emergence of 5G. And many of these stocks will report earnings this week.
Here are the three telecom stocks you may want to invest in before they announce earnings.
Telecom Stocks to Watch: Crown Castle International (CCI)
There is some concern that many telecom stocks already factor in the benefits of 5G. However there are other opportunities beyond pure plays for investing in this sector. Crown Castle International (NYSE:CCI) is a real estate investment trust (REIT) that owns and leases much of the cellular infrastructure that enables mobile data traffic and access to the internet from mobile devices.
One of the key areas related to 5G that CCI invests in is small cell towers. Small cell towers will be significant because of 5G technology’s one major drawback: the ultrafast connections are only available in a very limited range. This means that there will need to be a massive number of small cell towers across the country to support a nationwide network. And CCI leases out 65,000 of these small cell towers.
Because it’s a REIT, Crown Castle pays no corporate income tax, so long as it makes good on the requirement to pay the bulk of its earnings to shareholders as dividends. And speaking of that dividend, the yield is currently 3.2% and has delivered five consecutive years of dividend growth.
The stock is up over 31% in the last 12 months, including over 5% alone so far in 2020.
Verizon Communications (VZ)
One of the best pure plays for investors interested in 5G technology is Verizon (NYSE:VZ). The first reason is that the company is already solidly entrenched in the areas of the country that enjoy 5G technology today.
And VZ stock also has a growing presence in the Internet of Things (IoT) industry. This is the sector that produces “smart” appliances, home security products and other connected devices — all of which can be controlled via users’ mobile phones. IoT is an area that stands to benefit the most from 5G , and Verizon has its 5G Ultra Wideband System to help deliver those devices data at lightning speed.
Verizon is not an analyst darling at the moment: the stock has gone up less than 10% in the last 12 months. And analysts are only giving the stock about a 5% upside from its current price. However, there is a narrative that many telecom stocks like Verizon already are pricing in the emergence of 5G. The performance of VZ stock either makes that statement untrue, or makes the stock a large outlier. I vote for the former.
Plus Verizon’s dividend yield has recently moved above 4% and the company has a 15-year history of increasing dividends.
There are some investors who would say AT&T (NYSE:T) is too risky to be considered a good buy at this point. Analysts give the stock a consensus rating of “hold” and a 12-month price target that would suggest there are better values.
The argument against AT&T stems from their merger with DirecTV and their recent push into the streaming wars with the acquisition of content from Time-Warner. The thought is with DirecTV the company is betting on a dying industry, and with Time-Warner they may be arriving too late to the party with a streaming product that doesn’t have the content consumers want.
But the one thing both of these acquisitions give AT&T is an anchor in the live sports arena. This is an area where many of the streaming services are falling short. Time Warner has sports rights to the NFL and NBA as well as Major League Baseball and the NCAA. But the most notable example is the NFL Sunday Ticket. Could this change? Maybe, but it won’t happen this year. And the contract is slated to run through the 2021 season.
While AT&T may be rethinking the model, DirecTV still generates healthy profit margins from DirecTV subscribers. Many of these subscribers only choose DirecTV because of the Sunday Ticket package. And the NFL is showing little interest (at the moment) for putting all of their out-of-market games on a streaming platform.
Add to this the fact that AT&T is a Dividend Aristocrat and there’s a lot of reason to believe that T stock will be a solid stock for investors in 2020.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.