The Print

AT&T (NYSE:T) and Verizon (NYSE:VZ) are the two dividends most income investors reach for in telecom, and Q1 2026 made them look like opposite trades.

Verizon had the louder quarter. Adjusted EPS rose 7.6% to $1.28, its best in four years; free cash flow grew 4% to $3.8 billion; and the company posted positive first-quarter postpaid phone net adds for the first time since 2013. It raised its 2026 adjusted-EPS guidance to $4.95–$4.99 and reaffirmed free cash flow of $21.5 billion or more, its highest since 2020. In the first quarter, it raised its dividend for the 20th consecutive year. The stock yields about 6%.

AT&T was quieter but cleaner underneath. Revenue rose 2.9% to $31.5 billion and adjusted EPS climbed 11.8% to $0.57. Free cash flow was $2.5 billion, down from $3.1 billion a year earlier as capital spending stepped up to $5.1 billion. The dividend, cut nearly in half in 2022, remains frozen at $1.11 a share, and the stock yields about 4.3%. AT&T reiterated 2026 free cash flow of $18 billion or more and a plan to return $45 billion-plus to shareholders through 2028.

One dividend pays you more and has a 20-year increase streak. The other pays you less and was reset in 2022. The question is not which has the better yield or the longer streak. It is which dividend is better covered by the cash that actually pays it.

What Pays A Dividend Is Free Cash Flow

A dividend is not paid out of its yield, and not out of earnings. It is paid out of free cash flow. So the number that matters is not how much a stock yields — it is how much of each free-cash-flow dollar the dividend already consumes.

On 2026 guidance, the gap is clear. AT&T’s roughly $8 billion of annual dividends consume about 44% of its $18 billion-plus free cash flow target. Verizon’s roughly $11.6 billion of dividends consume about 54% of its $21.5 billion-plus. In 2025 the split was wider still — near 42% for AT&T against about 57% for Verizon. The higher-yielding dividend is the one with less room.

That inverts the intuition. The dividend with the longer increase streak sits on the thinner cushion; the dividend that was reset now sits on the fatter one. AT&T’s 2022 reset is precisely why its payout consumes so little of today’s cash flow — and why it has room left for roughly $8 billion of buybacks and continued debt reduction on top of the dividend.

A Streak Is History, Not Coverage

Verizon’s 20-year run of increases is real, and it is a genuine signal of management’s commitment. But a streak describes what a dividend has done. It does not measure what a dividend can survive. Coverage does that.

The same caution applies to the balance sheet, where the two are closer than the income comparison suggests. AT&T ended Q1 at 2.71x net debt to adjusted EBITDA, up from 2.53x at year-end after closing the Lumen transaction, and expects leverage to rise toward 3.2x once its EchoStar transaction closes before working back toward a 2.5x target. Verizon ended at about 2.6x net unsecured debt to EBITDA, up from 2.2x after the Frontier acquisition, with roughly half of Frontier’s debt already repaid and a 2.0x–2.25x target for 2027. Both are investment-grade, both sit in the mid-2s, and both are deleveraging. Leverage is not what separates these two dividends. The free-cash-flow cushion is.

Which Dividend Survives A Bad Year

Neither dividend is in danger today; both are covered. The structural question is what happens if free cash flow stalls.

Verizon offers more income now and a rising cash-flow trajectory, but its payout already claims more than half of free cash flow, and its capital plan still has to absorb Frontier integration alongside heavy fiber and spectrum spending. If free cash flow flattens, the cushion thins from a level that is already tighter. AT&T offers less income and no dividend growth, but the cut it took in 2022 bought it a payout that today’s cash flow covers with room to spare — room it is spending on buybacks and deleveraging rather than on the dividend itself.

In telecom, as everywhere in income, the yield ranks these two one way and the coverage ranks them the other. A dividend is paid out of free cash flow, not out of its yield — and a 20-year streak is history, not a cushion. The screen shows you the yield. The cash flow statement shows you the room.

Source: AT&T Inc. Q1 2026 earnings release and earnings call (April 22, 2026); Verizon Communications Inc. Q1 2026 earnings release and earnings call (April 27, 2026); company filings.

The author holds no position in any security mentioned. Generalized research, not personalized investment advice.

For further research, read the weekly structural income letter at jungmoku.substack.com.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.