Better High-Yield Dividend Stock: Verizon or AT&T?

Verizon Communications (NYSE: VZ) was a component of the Dow Jones Industrial Average for 22 years. This week, that run ended. S&P Dow Jones Indices swapped the carrier out and added Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) in its place, effective June 29, tilting the 30-stock benchmark toward artificial intelligence (AI) and away from a stock that made up about half a percent of its weight.

For income investors, though, index membership and dividend quality are separate questions. After all, Verizon still yields more than 6%, and its closest rival, AT&T (NYSE: T), pays about 5%.

With these telecom stocks selling off recently, it's a good time to take a look at them -- even if they seem to be falling out of favor. They both throw off enormous amounts of cash, and both trade at single-digit earnings multiples. So, which is the better high-yield dividend stock to buy now?

Here's how they stack up.

Image source: Getty Images.

Verizon: out of the Dow, but the cash keeps flowing

Verizon lost its Dow seat for reasons unrelated to its dividend. The index is price-weighted, so a stock near $44 carries far less sway than a $350 name like Alphabet, and the index committee wanted more exposure to AI.

The payout, meanwhile, looks sturdier than it has in years. Verizon's first-quarter 2026 free cash flow rose 4% year over year to $3.8 billion, and management guided for full-year free cash flow of $21.5 billion or more -- which would be its highest since 2020. Against a dividend that costs about $12 billion a year, that leaves comfortable room.

The business is turning, too. Verizon added 55,000 postpaid phone subscribers, its first positive first quarter on that measure since 2013, along with 341,000 broadband connections. Adjusted earnings per share grew 7.6%, the fastest quarterly pace since 2021.

Then there's the track record. In September of last year, Verizon raised its dividend for the 19th consecutive year, one of the longest active streaks in the sector. At about $44 as of this writing, the stock sits near the low end of its 52-week range.

The catch, however, is leverage. In January, Verizon closed its approximately $20 billion purchase of fiber provider Frontier, pushing net unsecured debt to about $130 billion and lifting leverage to 2.6 times adjusted EBITDA, up from 2.2 times. Management says it has already repaid about half of Frontier's debt and expects to clear most of the rest by year-end.

AT&T: a lower yield, a turnaround further along

AT&T reaches the income question from the other side. Its turnaround started earlier, but shareholders paid for it up front.

In 2022, after spinning off WarnerMedia, AT&T cut its dividend 47%, from $2.08 a share to $1.11. The payout has sat at $1.11 ever since -- four years without a raise. Management deliberately sized it at about 40% of free cash flow so it could fund its fiber and 5G build and pay down debt.

The underlying business is doing well. First-quarter revenue rose 2.9% to $31.5 billion, adjusted earnings per share jumped nearly 12%, and AT&T booked its best-ever first quarter for fiber and fixed-wireless additions. Management guides for free cash flow above $18 billion this year, rising past $19 billion in 2027 and $21 billion in 2028. One wrinkle: first-quarter free cash flow fell to $2.51 billion from $3.15 billion as capital spending climbed.

Rather than grow the payout, AT&T returns cash through buybacks -- about $8 billion planned for 2026, on top of the around $4 billion repurchased last year. For total return, that can work. For an investor who wants a rising income stream, a frozen dividend with a recent cut is a harder sell.

And the balance-sheet edge income investors might expect from AT&T isn't there. It leaned on its own balance sheet for fiber too, paying $5.75 billion for the consumer fiber business of Lumen Technologies. Its leverage now sits in the mid-2-times range, right alongside Verizon's.

The better dividend to buy now

So which high-yield telecom wins for income? I'd take Verizon.

It pays the higher yield (more than 6% versus about 5%) and it actually raises that payout every year, while AT&T's has been frozen since 2022. Additionally, Verizon's free cash flow covers the payout with room to spare. And the two trade at almost the same forward price-to-earnings ratio -- about 9 times this year's expected earnings -- so the higher yield and the growth don't cost extra.

None of this makes AT&T a poor choice. It boasts notable earnings growth and an impressive buyback program. So, for an investor focused on total return rather than income, the call is closer.

But the question is which is the better high-yield dividend stock -- and on yield, payout growth, and cash coverage, Verizon arguably has the edge, Dow membership or not.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.