XLC Telecom ETF: Heavy on Big Tech, Light on Income

XLC's Portfolio: More Tech Than Telecom

The Communication Services Select Sector SPDR Fund (NYSEARCA:XLC) is often perceived as a telecom-focused ETF, but its actual holdings reveal a different story. The fund's largest positions are Meta Platforms at 19.9% and Alphabet's two share classes, which together account for roughly 23% of net assets. Legacy telecom companies such as AT&T (4.09%), Verizon (4.14%), Comcast (4.70%), and T-Mobile (4.15%) constitute only a small fraction of the portfolio. The remainder is composed of media and tech giants like Netflix, Electronic Arts, Take-Two, Disney, and Warner Bros. Discovery, many of which pay minimal or no dividends. Consequently, XLC's distribution yield is less than 1%, and its price performance has been lackluster, down 3.46% year to date, as ad-driven mega-caps have faced headwinds.

Direct Telecom Holdings Offer Higher Yields

For income-focused investors, holding the telecom components directly provides a more targeted approach. AT&T (NYSE:T) trades at $26.01 with a dividend yield of 4.36%, backed by strong free cash flow. In Q2 2026, the company generated $4.7 billion in free cash flow and reiterated its full-year guidance of $18 billion or more. Management has accelerated share repurchases to approximately $10 billion in 2026, up from a prior $8 billion target, and combined dividend payments and buybacks are expected to total about $18 billion, essentially 100% of projected free cash flow. With a trailing P/E of 8, buybacks are particularly accretive.

Verizon Communications (NYSE:VZ) offers a dividend yield of 5.65%, supported by 20 consecutive years of dividend increases. The company's shares have risen 29.19% year to date, partly due to the closing of the Frontier acquisition on January 20, 2026, which is expected to result in over 32 million fiber passings by year-end. Verizon raised its full-year adjusted EPS growth guidance to 5% to 6% and increased its buyback authorization. The CFO emphasized the dividend's strength, and with full-year free cash flow guidance of $21.5 billion or more and a forward P/E of 10, the stock offers a balance of yield and modest growth.

Comcast (NASDAQ:CMCSA) trades at $26.67 with a forward P/E of 8 and a dividend yield of 5%. The company reported record wireless net additions of 448,000 in Q2, and Peacock achieved profitability with $189 million in EBITDA. Comcast generated $4.6 billion in free cash flow during the quarter. The company has paused its share buyback program as of July 1, pending the spin-off of NBCUniversal and Sky, and adjusted EBITDA declined 13.4% year over year. However, the dividend remains intact, and shareholders will receive shares of the standalone media company upon completion of the separation, expected in about a year.

Comparing the Options

Together, AT&T, Verizon, and Comcast offer a blended dividend yield in the mid-5% range, significantly higher than XLC's sub-1% distribution. While holding these three stocks directly involves single-name risk and higher debt levels—AT&T's net leverage is 2.68 times, above its 2.5 times target, and Verizon's is approximately 2.6 times—the income and capital-return programs are more transparent and directly attributable. For investors in taxable accounts, selling XLC shares could trigger capital gains, so redirecting new contributions into the individual telecom stocks may be a more tax-efficient approach.

What it means for income investors

XLC is not a suitable proxy for telecom income, as its yield is minimal and its performance is tied to tech and media giants. Direct ownership of AT&T, Verizon, and Comcast provides a substantially higher yield and clearer exposure to the telecom sector's capital-return strategies. This distinction is crucial for those seeking reliable income from their investments.

Reporting based on: 24/7 Wall St.. Figures verified against market data where available.