Dear Mr. Berko: I’m torn between investing $50,000 in AT&T and investing $50,000 in Verizon. My Merrill Lynch stockbroker is much more bullish on AT&T than he is on Verizon. However, the adviser who runs my retirement account at Northern Trust prefers Verizon. I have equal respect for both men and need you to be the arbiter. I also could invest $25,000 in each, as my wife suggested.
— CS, Oklahoma City
Dear CS: What to do, what to do and what to do?
Both of these telecoms are rated A++ by Value Line, but one has had a better average annual total return over the past 10 years. If you had invested $50,000 in Verizon Communications in October 2008, when the share price was $30, and reinvested every dividend since, the accumulated value of your shares of Verizon Communications (VZ-$59) would be just about $152,000 today. That’s an 11.5 percent average annual total return, good in anybody’s book. If you had invested $50,000 in AT&T Inc. in October 2008, when the share price was $28, and reinvested every dividend since, the value of your shares of AT&T (T-$30) would be about $90,500 today. That’s a 7.5 percent average annual total return. Though that’s not shabby, VZ’s average annual total return is 50 percent better. So during the past 10 years, VZ has certainly given its shareholders a much better total return than T. The reasons are that it has better assets, better employee training and efficiency, and superior management.
AT&T has 253,000 employees and expects to ink $172 billion in revenues on the books for 2018. That’s $680,000 in revenues per employee. Verizon has 155,000 employees and expects to put $130 billion in revenues on the books this year. That’s $860,000 in revenues per employee. In other words, each VZ employee produces $180,000 more revenue than a T employee. (So I don’t understand why I’m put on hold for a dozen minutes whenever I call VZ’s help desk.) This year, VZ’s employees may be responsible for $19 billion in total income, or about $122,000 of profit per employee. T also expects to post a profit of $19 billion, but T’s profit per employee of $76,000 pales in comparison with VZ’s. There are other comparisons that argue smartly in favor of Verizon. But though Verizon has certainly provided investors a significantly better return than AT&T, perhaps it’s T’s turn to outperform VZ.
I’m told by a trusted source that the Justice Department’s appeal of AT&T’s $85 billion acquisition of Time Warner Inc. continues to fall flat on its bum. It’s also Wall Street’s consensus that the appeal will fall flat on its face. So AT&T now owns TNT, HBO, CNN and other Time Warner assets. T’s management has begun to increase its spending on program content and upgrades to its networks, which should enable T to compete with streaming giants, such as Apple, Netflix and Google’s YouTube. T’s Time Warner division will begin to offer a wide range of attractive and exclusive product bundles that should build out its video business with DirecTV, which T acquired in 2015. And with Time Warner’s highly desirable program content, T expects an uncommonly generous increase in advertising sales, which should improve earnings and dividend growth.
