This Friday, hordes of tech-obsessed (and status-conscious) American will bum-rush stores to get their hands on a new Apple (AAPL) iPhone, be it the plain ol’ iPhone 6 or the “phablet” iPhone 6 Plus.
But another stampede has been in progress for months — of investors clawing their way into Apple stock, with Wall Street driving AAPL stock higher by nearly 10% in the past three months as buzz over these new offerings swelled to a fever pitch.
Should you buy Apple stock now and ride the hype machine even higher? Or is Apple’s march to all-time highs doomed just like its last peak back in 2012, which saw AAPL prices nearly halved in less than a year?
I don’t know. Personally, I get all my tech-growth jollies from Tesla (TSLA), so I don’t care.
What I care most about Apple’s high-profile release is what it means for the big, boring, cash-generating machine of Big Telecom — AT&T (T) and Verizon (VZ).
Telecom — Feeding America’s Mobile Addiction
America has both a love for and a dependence on mobile technology. Consider that from March 2011 to March 2014, the number of Americans who owned smartphones ballooned from to .
And it’s no big secret that someone has to provide the wireless technology on all those smartphones.
While there are smaller players such as T-Mobile (TMUS
) and Sprint (S), AT&T and Verizon are the two-headed dragon of U.S. telecommunications service. The duo combine for , which leads some to call them the “virtual duopoly.” That dominance has been the status quo for years, and while T-Mobile and Sprint (and even smaller players) will continue to push out innovative deals to try to change that, the simple fact of the matter is that changing providers is a hassle, and options are severely limited anyway.
The flip side of this is that telecom is hardly a growth story — , and growth expectations for T and VZ stock are thus muted. But it doesn’t have to be.
In short, AT&T and Verizon are essentially utilities. They provide a service that most Americans simply have to have. And when you consider that Apple got within the first 24 hours of availability … it’s clear America’s close relationship with smartphones isn’t going anywhere.
And just like with utilities, there’s no expectation for rip-roaring stock gains out of T and VZ stock, but neither is there much concern about sudden drops, either.
The expectation is for AT&T and Verizon to keep putting their cash to work through pleasing shareholders — after all, that’s what they’ve done for decades.
Should You Buy T Stock or VZ Stock?
As far as their core businesses go, AT&T and Verizon couldn’t be more similar, and both of them yield fat, sustainable dividends.
Truth be told, either is a good holding. It just depends on what’s important to you. But here’s a quick look of what each offers:
- AT&T: For one, T stock’s dividend yield of 5.3% at current prices definitely wins over Verizon’s 4.5%. Moreover, if you’re just looking for a more established history of dividend increases, AT&T wins that battle at almost three decades to Verizon’s seven years. (Hence AT&T’s place on our Dependable Dividend Stocks list.) Moreover, AT&T’s pending merger with DirecTV (DTV) also looks like a winner, providing AT&T with a television product much more attractive and established than U-Verse, namely because of the that DirecTV enjoys and is expected to renew.
- Verizon: The current yield on VZ stock might be smaller, but it is growing dividends at a faster rate, by about 3% annually vs. closer to 2% to AT&T. And you can expect that trend to continue. Verizon’s a much better cash generator of late, pumping out some $6.3 billion through two quarters of 2014 vs. $5.2 billion for AT&T. Plus, Verizon is paying out a much smaller percentage of its free cash flow in dividends – 60% to AT&T’s 94%. Buying the remaining stake of from Vodafone (VOD) should only improve its cash flow situation (though it did take quite a bit out of the vault). And lastly,
The decision of one vs. the other really comes down to established dividend vs. potential dividend growth.
Fortunately, we live in a world in which we don’t have to choose, and a world in which diversification ain’t all that bad, so if it’s really that painful a decision for you, buy both T and VZ.
You could do a lot worse than owning both halves of a “virtual duopoly” that should throw off hefty and growing dividends for decades until the next great technological revolution somehow renders AT&T and Verizon obsolete.
But that’s a long way off. Collect your cash until then.
is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he was long T and TSLA. Follow him on Twitter at .
