Many investors love dividends. Some even depend on dividends to boost retirement income. And dividends, particularly when reinvested, can contribute one-third or half of all total returns over time. But what happens to investors who own dividends when those same income-paying stocks are gutted over multiple fears simultaneously? This is the conundrum that faces AT&T Inc. (T) with a 5.3% dividend yield. It’s also impacting Verizon Communications (VZ) with a 6.5% yield at the present moment.
This instance of “dividend mortality” is not likely to result in dividend cuts or outright dividend eliminations any time soon. That said, sometimes owning dividend stocks for the sake of being paid those dividends can make investors feel terminally ill.
AT&T and Verizon shares both had a horrific June. What’s interesting is that the selling pressure has become exacerbated even though the fears are not exactly new fears. And for another puzzle, those underlying fears may take years before fully playing out. Verizon started at $48 in June, then slid over 12% to nearly to $42 by month-end. AT&T was almost at $25 at the start of June, but its shares slid 16% over the month and are fighting to hang on to $20.
The biggest problem for Wall Street is trying to price in what may come rather than what has actually happened. What exactly is the market trying to price in here? Competitive threats are the biggest risk at the moment. Index changes and broad selling in telecom and communications are only adding insult to injury to investors who are counting on their dividends.
Elon Musk’s SpaceX (SPCX) is being deemed prime competition for all forms of communications. With its mega-IPO behind it, SpaceX’s Starlink is a top worry for its potential entry into the U.S. wireless market. A fresh Bloomberg report touted discussions between SpaceX and Charter Communications (CHTR) to handle some Starlink mobile traffic over land-based internet. A Wall Street downgrade at the start of June by Oppenheimer warned that SpaceX would disrupt the $1.6 trillion U.S. communications. But that’s now been almost a month ago — and the selling pressure for AT&T and Verizon has grown worse rather than investors looking for any over-sold bottom.
It should be of no surprise to investors that low-Earth-orbit satellite broadband could be a disruption to legacy wireless carriers. This is not new, but barring any unknowns this risk will persist for some time. Let’s just say that Elon Musk, and others, may view many new sources of revenues that can be taken from AT&T, Verizon and others.
BUT WAIT! THERE’S MORE!
AT&T was also removed from the Russell Top 50 Index as part of FTSE Russell’s June reconstitution. This index tracking impacts approximately $12 trillion in total assets tied to the Russell U.S. indexes. In short, it’s not inconsequential to say the least.
An ongoing issue outside of competition is investors selling over concerns about a spectrum crunch. High customer acquisition costs are an ongoing theme as well. Taking even 1% to 2% market share can literally cost billions!
Does joining the 52-week low club matter? Actually, yes, it does matter. There is an old saying for investors — “stocks that hit 52-week lows often keep hitting 52-week lows” — meaning that weak stocks tend to remain weak. AT&T is now down 30% from its 52-week high, while Verizon is down about 18% from its 52-week high.
Valuations matter, sort of, but total the addressable market is another thing entirely. AT&T and Verizon both screen at under 10-times earnings. AT&T has a market value of $144 billion, while Verizon is now valued at $177 billion. The two companies alone counted $268 billion in 2025 revenues, so it’s a lot of potential free money for Starlink (and others) to try to go after.
T-Mobile US (TMUS) has a more reasonable 2.5% dividend yield, and its $181 billion market cap values the stock at closer to 15-times forward earnings. Its stock also fell more than 10% in the last month and is down 35% from its 52-week high, also challenging 52-week lows.
When Oppenheimer’s big downgrade on A&T was issued on June 3, the warning was clear at that point — Verizon, AT&T, and T-Mobile should ALL be terrified of Elon Musk’s next move (Starlink moving to wireless!).
And for Charter Communications et al, Comcast (CMCSA) announcing a split-up of NBCUniversal and Sky just adds even more into the mix even if most believe media will remain media and communications will remain communications. It hasn’t been that long since AT&T was a media giant.
WHEN DOES IT BALANCE OUT?
The share price drops seen in AT&T and Verizon alone stand out because so many income-seeking investors own these stocks for their dividends. Having a 5% dividend sounds attractive, unless the stock falls multiples of that 5%. AT&T is considered the biggest “at-risk” communications play here because it has the most to lose — its wireless network serves approximately 124 million mobile connections with 77 million post-paid subscribers.
BofA reiterated its Buy rating on AT&T in April with a $34 price target. That timing was less than stellar for investors who have bought it since then, particularly after BofA said “AT&T is our Top pick for US telecom!” That report also talked about AT&T adjusting capital spending lower, with $4 billion lower in expenses for 2028. BofA’s investment rationale never even addressed any competitive threats (although its “downside risks to price objective” did) that have investors spooked right now:
We view AT&T as fundamentally sound, with a stable subscription-based business model. Historically, the stock has outperformed during periods of M&A and wireless margin expansion-fueled EPS growth and during periods of market uncertainty, when AT&T’s dividend yield and predictable business model have been highly valued.
CFRA’s June 27 update showed only a Hold rating on AT&T, but the firm has a $28 price target. And with cost-cuts coming, CFRA also highlighted that AT&T’s Fiber expansion to over 60 million locations (from 37 million last quarter) by 2030 positions it for growth despite lagging T-Mobile in 5G coverage. And on top of still-high leverage, CFRA did warn that integration risks from Lumen and EchoStar acquisitions could impact execution.
It is very possible that some dust will settle after the index rebalancing all finally catches up. That said, the market is worried about competition from a fierce competitor (SpaceX via Starlink) that’s now worth more than all three major wireless carriers combined.
DIVIDEND LESSONS
Dividend and growth investors alike should know that there is no free lunch in the stock market. And investors should know that the stock market tries to price in news and developments ahead of time. Generally speaking, beating earnings and lowering guidance in the same report tends to be worse for a stock that meets earnings expectations and raises guidance in the same report.
AT&T and Verizon have their earnings behind them, but the market is trying to factor in what years of new competition will look like. The reality appears to be, as of now, that the market does not know what the endgame after the competition starts that looks like. This is unlikely to have any impact on the high yields of AT&T and Verizon in the near-term. Whether there is any dividend mortality down the road depends on many issues.
There are many lessons for dividend investors to consider. The list could be endless but here are a few as they stand in the case of AT&T and Verizon versus SpaceX and any other new threats in the communication space:
- legacy companies don’t usually get the same respect as high growth companies
- chasing dividend yields just for the yield can be painful
- companies with slow earnings growth generally can’t raise dividends much (or endlessly)
- growth companies don’t care if they step on legacy companies and pressure their dividends
- total returns of late have favored growth over dividends
- some investors think dividends are capital that could have been reinvested for growth
- a leveraged balance sheet for growth is currently rewarded over leverage to pay high dividends
Again, these are just some basic dividend concerns that should be considered in this particular case at this particular time. It is unlikely to stay that way forever. That just won’t make the pain from June feel much better for the time being.
