AT&T Inc. (T) Stock Is More Than Just a Juicy Dividend

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During the past few years, AT&T Inc. (NYSE:T) has undergone a major transformation, driven by large acquisitions. And of course, this has been fraught with risks. Let’s face it, there are many examples of epic disasters. Just look at the $147 billion merger of Time Warner Inc (NYSE:TWX) and AOL. The deal, which was struck at the height of the dot-com boom, soon fizzled — wreaking billions of dollars in lost shareholder value.

T Stock: AT&T Inc. (T) Stock Is More Than Just a Juicy Dividend

Despite all this, I think the efforts by T stock should fare much better. If anything, the company has a long history of successful M&A, such as by leveraging the telecom network and infrastructure as well as taking advantage of cost savings.

T Stock’s Great Position

But AT&T also has a compelling vision. During last quarter’s earnings call, CEO Randall Stephenson said:

“We’ve been getting ready for a world where mobile technology and premium video content would intersect. And we’ve been convinced for a long time that this intersection was inevitable. And when it happened, we wanted to have the foundation laid to make the intersection a very different experience for our customers. And that foundation in our mind begins with a network that’s engineered and designed for the special requirements of video. It has to have deep capacity, it has to have broad distribution.”

AT&T next reports earnings Tuesday after the close. Yes, the network is certainly massive, which covers almost 400 million people in the U.S. and Mexico. Such assets are valuable barriers to entry — and should provide for downside protection with T stock.

As for AT&T’s transformation strategy, it hinges on two mega acquisitions:

  • DirecTV: The result of this deal was to make T stock one of the world’s largest providers of pay-TV services. But there was also the benefit of an extensive portfolio of premium sports content. Note that AT&T has been quick to innovate with DirecTV, such as with the introduction of an over-the-top streaming service. This market is fast-growing, as seen with the success of Netflix, Inc. (NASDAQ:NFLX).
  • TWX: While this deal has yet to be closed, it does look like there’s a pretty good chance that it will get done by the end of the year. No doubt, Time Warner certainly has a treasure trove of assets, such as Warner Bros. Studios, DC Comics (which include Batman and Superman), Home Box Office and Turner Networks. So marrying all this with the distribution platform of AT&T is definitely powerful.

Yet there are other assets — ones that often get overlooked — that should provide growth opportunities for T stock. Consider that the company’s biggest source of revenues comes from its Business Solutions division, which generated a hefty $71 billion on the top line in 2016. As should be no surprise, the key drivers include wireless and strategic business services.

But AT&T has leveraged its technology into new growth areas like online security, networking and even the Internet of Things (IoT), such as with connected cars.

Bottom Line on AT&T Stock

Now, there are notable issues with T stock. Let’s face it, the mobile phone business is intensely competitive, with tough rivals like Verizon Communications Inc. (NYSE:VZ), T-Mobile US Inc (NASDAQ:TMUS), Sprint Corp (NYSE:S) and even Comcast Corporation (NASDAQ:CMCSA). It looks like there may be a price war brewing, as seen with the moves towards unlimited plans.

But then again, the strategy for AT&T is to evolve its platform, so as to not be overly dependent on any category. The good news is that the focus on entertainment is a good fit with the company’s enormous distribution footprint. But more importantly, AT&T is showing that it can make bold decisions.

At the same time, AT&T has demonstrated consistent discipline with its execution. After all, T stock has seen dividend increases for the past 33 years, as the company has been able to consistently generate strong cash flows. Note that the current dividend yield is an attractive 4.9%.

In other words, with the transformation strategy, T stock offers a nice blend of potential growth — and also a competitive yield.

Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companiesFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/att-inc-t-stock-juicy-dividend/.

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