Telecommunications companies design, manufacture, and deliver the technology required to digitally interconnect the world. They offer phone, internet, and television services, and also build and maintain the infrastructure needed to support them.

The sector has become increasingly attractive in 2023 to dividend investors, and also to those seeking safer harbours. Telecoms is widely regarded as a defensive sector as customer demand remains stable through recessionary periods — and it is becoming harder to predict whether the long-anticipated global recession will come to pass.

On the other hand, even the largest telecoms companies are still growing and innovating. As part of the tech sector, disruptions including 5G, AI, the Internet of Things, cloud computing, cybersecurity, and blockchains are all growth areas that could see the best telecoms stocks continue to grow.

Indeed, Meucci devised the first phone in 1849, while Bell won the first US patent in 1876. It took until 1991 for Berners-Lee to develop the World Wide Web, and today half of the world carries a smartphone containing the sum of all human knowledge in their pocket, able to contact anybody in the world at a second’s notice.

But the growth isn’t over. The global telecom market rose from $2,642 billion in 2021 to $2,880 billion in 2022, at a CAGR of 9%. And telecoms are forecasted to reach $3,629 billion by 2026 — making the best telecoms stocks perhaps worthy of portfolio consideration.

Top telecoms stocks to watch

1. Vodafone

Vodafone is a global telecoms operator with a footprint across 22 operating companies. In recent Q1 results, the FTSE 100 company saw group service revenue, which covers sales from contract payments, network use, and roaming, rise by 3.7% year-over-year to €9.1 billion. This increase was mostly due to price rises in the UK and increasing customer numbers, and it outperformed the average analyst estimate of 2.9%.

However, Vodafone’s largest market of Germany saw service revenue fall for a fifth time in a row, this time falling by 1.3%. Further, price increases saw 120,000 broadband customers abandon the company, with new CEO and former CFO Margherita Della Valle noting ‘we have much still to do.’ For balance, its shares have fallen by 40% over the past year.

However, Vodafone may see brighter days ahead. Performance in Spain and Italy has improved, and the group should benefit from restructuring that will see it shed 12% of its workforce, equivalent to 11,000 jobs.

Beyond this, the company is planning a tie-up with Three to create the largest UK telecoms titan, though this is currently subject to a CMA investigation.

2. BT

BT is the another globally significant FTSE 100 telecoms stock. It plays a major role in the UK and Ireland, but also operates internationally across 180 countries. Its share price has fallen by 47% over the past five years, but a significant factor in this decline has been investment into infrastructure that is only just starting to pay off.

BT has a significant competitive advantage in the UK, as it’s responsible for maintaining the Openreach network, the national broadband network that is used and paid for by almost every other broadband operator.

The company is determined to expand this full-fibre network alongside its 5G rollout, aiming to create the ‘best converged network’ possible. After acquiring EE, the company now believes itself far ahead of the competition in this regard and has entered into a novel partnership with Ericsson to provide commercial 5G private networks across the UK.

In recent H1 results, CEO Philip Jansen enthused that ‘we’ve grown both pro forma revenue and EBITDA for the first time in six years while navigating an extraordinary macro-economic backdrop...Openreach Board has reaffirmed its target to reach 25 million premises with FTTP by the end of 2026 and plans to further accelerate take-up on the network.’

3. Verizon Communications

Verizon is by far the largest wireless network carrier across the continental United States, and this scale brings significant gross margin power and hefty free cash flow. Indeed, its cash flow has steadily exceeded its dividend payments for years, leaving the company relatively stable — though it has suffered long-term share price decline alongside its international peers.

Positively, Verizon is also slowly starting to pay off its debt mountain. And while it had it the past relied on its wireline business, it’s been selling off assets to build up enough cash to build up a wireless business of tomorrow. Indeed, capital spending is now almost entirely devoted to acquiring wireless spectrum licences, and it was the largest bidder in the 2021 C-Band spectrum auction in the US.

In recent Q2 results, consolidated operating revenue declined by 3.5% year-over-year to $32.6 billion, driven by reduced wireless equipment revenue and lower postpaid phone upgrade activity as consumers tighten their belts. However, the company saw an eight consecutive quarter of Verizon Business phone net additions, adding another 125,000 to the total.

Verizon, like BT and Vodafone, could be setting itself up for significant long-term growth.

4. Comcast

Comcast is the largest domestic internet service and pay-TV provider in the US, with the majority of its revenue derived from its cable communications sector. The S&P 500 company brings in hundreds of thousands of new internet subscribers every year, which typically sign up on high margin agreements. While there is increasing competition from wireless carriers, Comcast’s overwhelmingly dominant market share means it can continue to invest for the future.

The company also owns NBC Universal, which has a substantial footprint in the US, and Sky, which is hugely influential across Europe. Comcast paid a whopping $39 billion for Sky after a bidding war in 2018, but the businesses are complementary and have helped its long-term performance.

In recent full-year results, CEO Brian Roberts enthused that the company ‘achieved the highest levels of Revenue, Adjusted EBITDA and Adjusted EPS in our history and returned a record $17.7 billion of capital to shareholders.’

Further he noted that Comcast ‘delivered impressive revenue growth in broadband; grew wireless lines by 1.3 million, our best result since launch; more than doubled our Peacock subscribers, surpassing 20 million at year-end; nearly tripled Peacock revenue to $2.1 billion; ranked second in worldwide box office; and generated record Adjusted EBITDA at our theme parks.’