“Boring is good” for AT&T Inc. (NYSE:T), according to InvestorPlace writer and IPO Playbook Editor Tom Taulli, and for whatever it’s worth, I mostly agree. But really, what choice do I have? AT&T as a corporate entity has existed for over 50 years above the average American lifespan. This isn’t Elon Musk and Tesla Motors Inc (NASDAQ:TSLA). And I highly doubt that there are T stock fan boys trolling the internet to defend the honor of AT&T.
Maybe that’s a bit of a low blow. T stock isn’t irrelevant by any means. In fact, AT&T scored the biggest “T” of our media ecosystem — as in Taylor Swift.
I don’t need to haul in loads of statistics for you to understand the marketing power behind the company’s “Taylor Swift Now” experience. Just by name recognition, AT&T can piggyback off the social media and pop culture phenomenon.
But will this and other deals translate to profitability for T stock investors? The initial signs don’t look too hot. Presently, AT&T stock is just a few cents higher than when “Taylor Swift Now” launched. At one point, T was up 4% generated by the enthusiasm.
Why Investors Love T stock
At the same time, T stock just gave investors a 30% return last year. Obviously, they’re doing something right. It would be intellectually dishonest not to acknowledge and credit the successes of AT&T.
First, the venerable company is making some savvy moves. The most conspicuous of these is the acquisition of Time Warner Inc (NYSE:TWX). Although this deal has its own set of inherent risks — we are talking about media and entertainment, after all — AT&T is loaded with money. More importantly from an administrative perspective, its free cash flow is indeed free and flowing. If anybody can absorb the risk, it’s T stock.
Then there’s the exciting details written in the fine print. The company has revamped its acquisition of DirecTV with standard-bearing streaming services. Also, the introductory rate for new DirecTV customers is $35 a month, which then moves up to a still agreeable $60 regular rate. Best of all, the platform is well-integrated with others, including Apple Inc. (NASDAQ:AAPL) TV and Amazon.com, Inc.’s (NASDAQ:AMZN) Fire TV.
If initial reports are anything to go by, T has a big winner on its hands. There’s good reason to believe that the late winter rally of AT&T stock was primarily attributed to DirecTV’s popularity.
Of course, anyone that has had their eye on T stock knows that the AT&T dividend is a huge draw. With a 4.7% yield, that is very difficult to ignore. This is all the more true considering that high rates of passive income typically carries significant capital risk. I don’t know about you, but I’m pretty certain that this company isn’t going anywhere any time soon. Furthermore, the payout on the AT&T dividend has steadily increased over the last 32 years.
Is the Relationship With AT&T Getting Old?
So why on earth would anyone cast doubt on T stock? The problem for me is that AT&T is in the maintenance business. As Taulli notes, the company has “79.4 million business wireless subscribers, 53.9 million consumer wireless subscribers and 25.3 million video subscribers. More importantly, AT&T has the benefit of a powerful moat — that is, a nationwide fiber optic network. Replicating this would be incredibly expensive.” Although impressive, there’s not much more that T can do in that department besides annexing Canada.
This is a point of heated contention, but it’s definitely worth mentioning — traditional media is dying.
Naturally, I’m leery of organizations and investments like AT&T stock, where salvation comes from a steadily archaic industry. And here’s another scary thought: According to Inc, a majority of millennials don’t even watch television.
This leads to a disconcerting theory. Maybe it’s not that T stock is irrelevant; rather, it’s their core business that is losing influence. If AT&T’s investments are focused on chasing yesterday’s trends, that might be a hindrance when tomorrow comes around.
At the end of the day, none of this matters depending on your personal perspective. If you’re looking for growth and have the time frame to take on heavier risks, avoid T stock. It just doesn’t have the speculative potential that’s necessary to reliably produce great gains. In addition, the AT&T dividend isn’t that big of a deal unless you’re putting serious capital to work.
Which then brings T stock to where it most belongs — in a conservative retirement portfolio. For that purpose, there aren’t that many superior candidates. It’s boring as heck, with a little bit of spice to not have you go comatose.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
