With the stock market in serious funk (and getting funkier by the day), investors are looking for safe places to put their money, such as stocks that pay healthy dividends. Which telecom stock?

maybe not.

The truth is telecom stocks. These days, there are really only three big guys. AT&T (T), Verizon (VZ), and T-Mobile (TMUS) are not what they used to be. Some say it has something to do with its disastrous foray into the world of media, but it’s probably a matter of poor execution and business maturity.

Media calculation. Remember, within two weeks of last May, both AT&T and Verizon abandoned their respective content properties, WarnerMedia and Yahoo (yes, the latter owns my employer, Yahoo Finance). doing). These moves were made to weed out the frivolous, glitzy (we don’t care about the cost) media business from the data-driven, left-brained telcos. It was believed that by getting out of the content, the telephone company’s distribution business would be free to operate at full capacity, possibly benefiting shareholders.

AT&T CEO John Stankey told Yahoo Finance’s Brian Sozzi this week: “That’s one of the reasons why we decided to do what we do. If I was trying to fight too many battles on too many different fronts, I could do my best.” Today we are a more focused company, we are performing better each week than the week before, but there is still room .”

BURBANK, CALIFORNIA - OCTOBER 29: John Stankey, President and CEO; Speaking on stage at the HBO Max WarnerMedia Investor Day presentation at Warner Bros. Studios in Bank.  (Photo by Presley Ann/Getty Images for WarnerMedia)

John Stankey speaks on stage at the HBO Max WarnerMedia Investor Day Presentation at Warner Bros. Studios on October 29, 2019 in Burbank, CA. (Photo by Presley Ann/Getty Images for WarnerMedia)

Certainly on that last point.

Since May 15, 2021, when these announcements were made, Verizon’s share price is down 18% and AT&T’s is down 19%.S&P is only 4% off. The stock still underperforms the market, even after factoring in the 6% plus dividend yield.

Perhaps this is surprising given that these companies have made game-changing announcements. For AT&T in particular, selling content was a far bigger move than the scale of the business as a whole. This is also surprising given that both AT&T and Verizon stocks have high dividend yields, ideal for boosting stocks during market downturns.

Did deep-sixing the content business help telecom stocks? No, it didn’t.

Before we get into the details, let’s first consider T-Mobile, once ridiculed (and still hated) by the Big Two. Legere said he stepped down two years ago, but T-Mobile now has the upper hand, if not a victory. Barron’s recently noted that T-Mobile’s market capitalization ($177 billion) is larger than his Verizon ($173 billion) and his AT&T ($119 billion). Indeed, since both Verizon and AT&T are more leveraged, the old he has a greater overall enterprise value for the two companies. But the fact remains that T-Mobile’s stock beat Verizon and AT&T and beat the market. For the past 5 years.

John Legere, CEO of T-Mobile US Inc, arrives in Manhattan federal court for the T-Mobile/Sprint federal lawsuit in New York, USA, December 12, 2019.  REUTERS/Shannon Stapleton

John Legere arrives in Manhattan federal court during the T-Mobile/Sprint federal lawsuit in New York, USA, December 12, 2019. REUTERS/Shannon Stapleton

why is that? In a nutshell, run. T-Mobile merged with Sprint to aggressively price, increase market share, and most importantly improve its network.

“TMUS 5g networks are probably 18 months ahead of AT&T and Verizon,” said Keith Snyder, CFRA industry analyst. “[AT&T’s and Verizon’s] Poor balance sheet. Combined, these two companies have about $300 billion that will need to come off their balance sheets at some point. In the meantime, you will have to spend a lot of money on network deployment and new spectrum. “

Also, “Verizon’s stock price is lower than it was 20 years ago. AT&T’s stock price is lower than it was 20 years ago,” says veteran industry analyst Craig Moffett. “Yes, they paid dividends, but the total return from owning those stocks was less than what you could get from corporate bonds.”

But someone made money here. As his 2017 McKinsey report points out, Internet giants Amazon, Google, and Facebook are building massive businesses on AT&T and Verizon networks. The combined market capitalization of these three tech giants ($3 trillion) is 6.4 times his $469 billion for the three telecom companies.

So did AT&T and Verizon fail by failing to tie content and distribution? Moffett thinks it’s a herring.

“I don’t know if ‘Drag and Shake Between Content and Delivery’ was ever a highly relevant paper,” says Moffett. “It’s one of the things people like to talk about, but there really aren’t that many real-world applications. Part of the problem with trying to do vertical integration is that the law frowns on it.” So there’s a limit to what you can do, in theory you can make your content proprietary, but that’s generally not allowed as a carrier. There’s really no specific strategic logic.”

For Moffett, the problem is two companies with declining businesses and bloated balance sheets that will struggle to pay dividends in the future. AT&T has already cut its dividend as part of the sale of its media business earlier this year.

As for the company’s future path, Snyder says, “We’re not going bankrupt.” “They’re established, their business is generating cash. They just need to rethink what they’re doing.” Moffett offers a more succinct prognosis. “It’s terrible.”

Meanwhile, both analysts are optimistic about T-Mobile, which they say will continue to grow at the expense of incumbents.

Are you optimistic about AT&T and Verizon? “The bullish scenario for Verizon and AT&T is that expectations are so low that stocks have no choice but to go higher,” Moffett said. “And as long as they keep their dividends, the paper will probably do well.”

This is not a good position for Verizon and AT&T.

This article was featured in the Saturday edition of Morning Briefs on Saturday, September 17th. Your morning brief will be sent directly to your inbox every Monday to Friday by 6:30 AM ET. apply

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