Should Tobacco Dividends Be Lower Than Telecom Dividends?

This past week we could not help noticing how low tobacco dividends have become. The driving force may be a tie-up coming between Reynolds American Inc. (NYSE: RAI) and Lorillard Inc. (NYSE: LO). Still, an all-time high for Altria Group Inc. (NYSE: MO) this past Monday is keeping the Altria dividend yield lower than most might have expected before. AT&T Inc. (NYSE: T) is the king of Dow Jones Industrial Average dividends, and it is nearly 1% higher in yield than Verizon Communications Inc. (NYSE: VZ).

There are many things happening that have created higher valuations for tobacco and lower valuations for telecom. Yet, tobacco is still a killer. No one actually calls e-cigarettes a health product. Telecom companies do not kill people, other than those who cannot put their phones down and get too distracted to drive without crashing.

Verizon yields 4.3% and AT&T yields 5.25%. If you created a portfolio of the three tobacco stocks versus a portfolio of the two telecom leaders, the results would be 4.3% for tobacco and almost 4.8% for the telecom leaders.

We did include both AT&T and Altria among 10 of the highest-yielding S&P 500 dividends that are safe to hold. Still, should AT&T outyield Altria by almost 0.7%?

Where things get strange is that telecom is not exactly a bright spot for investors. AT&T shares are almost dead on where they were a year ago. Sure, AT&T has made this huge grab for DirecTV (NASDAQ: DTV). We ran the analysis on this, and its dividend will still be safe after the DirecTV acquisition.

Verizon made its huge move in 2013 to acquire the rest of the Verizon Wireless stake held by Vodafone Group PLC (NASDAQ: VOD). Verizon’s shares performed well on the deal, but if you go back a year, then Verizon shares are actually down.