Dividends are big part of investor appeal for the big two wireless carriers. AT&T paid out close to $12 billion in dividends last year, for a yield of just more than 5%. Verizon distributed $9.3 billion on dividends last year -- more than the combined price tags of AOL and Yahoo!, two of its businesses -- and has a yield just below 5%.
"The dividend is sacred," Macquarie Capital analyst Amy Yong said, adding that capital expenditures and network upgrades are second in the list of priorities for cash. "It's really about managing both of those, having healthy dividend growth and keeping the network healthy as well." AT&T's purchase of Time Warner Inc. (TWX) would actually improve the telecom's dividend coverage.
"Both of these companies have very large retail customer bases, individual investors who rely on that dividend," said Barry Sine of Drexel Hamilton LLC. Some institutional investors can only invest in stocks that pay dividends.
None of the other players in wireless have such generous policies.
T-Mobile USA Inc. (T) and Sprint Corp. (S) do not pay a dividend. However, T-Mobile said in its July earnings call that it may start a "small" payout. Comcast Corp. (CMCSA) and Charter Communications Inc. (CHTR) , which are entering the wireless industry by reselling Verizon's service, pay yields of 1.5% and 0%, respectively.
Last year, AT&T invested $22.4 billion in its network, nearly double the amount it paid out in dividends. The company generated more than $39 billion from operations. The company expects $18 billion in free cash flow this year. The company said in its 10-Q filing that its board would have flexibility to increase the dividend.
Verizon plans $16.8 billion to $17.5 billion in capital spending this year. The telecom also noted that it has performed well in network surveys while spending billions on its dividend. JD Power gave it the top scores for wireless network quality earlier this year. The company also finished tops in RootMetrics' mobile performance tests for the first half of the year. T-Mobile touted its first-place performance in Ookla's network speed tests, and crowed that Verizon fell to third after launching unlimited data plans earlier in the year.
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