The telecom industry has been run through the wringer over the past few years as price wars, online streaming and a heated debate over whether or not the internet should be treated as a utility all weighed on share prices. While some firms have been crushed by the pressure, others like AT&T Inc. (NYSE: T) have emerged even stronger. So with T stock earnings on tap for Tuesday, is it worth a buy?
Don’t get me wrong, the telecom industry is still a shaky place to operate — even Moody’s says so — but if you do dip a toe into the sector, make sure T stock is where you place your bet.
AT&T has proven itself as a solid competitor and the firm’s rock-solid financials provide some security in an otherwise uncertain arena. Not only that, but AT&T is about to make a huge strategic acquisition and its history of sharing success with shareholders makes it a good stock to own.
T Stock Has Solid Financials
One of the first places to look when deciding whether or not a stock is a worthwhile long position is finances. Solid finances prove that a company is well-run and that it has the ability to endure should things take a turn for the worst. T stock embodies this, and the company’s cash coffers are likely to continue growing in the months ahead. Revenue is growing, and free cash flow in 2016 was near $17 billion.
AT&T is said to be a major beneficiary of Trump’s corporate tax reform plans, and the telecom giant will also see its margins improve significantly once the Time Warner Inc (NYSE:TWX) acquisition goes through.
Strong financial are important for any company, but in AT&T’s case they are particularly desirable because the telecom industry is locked in a price-gouging war where only the strong will survive.
TWX Acquisition
Another huge reason to own T stock is the company’s upcoming merger with TWX. The Time Warner acquisition will be a boon to AT&T’s business because it will significantly decrease the firm’s content costs and improve AT&T’s value proposition to customers.
What’s even better is that at $40.25 per share, the benefits of adding TWX to AT&T’s umbrella aren’t priced in. That’s because there is some concern over whether or not the deal will make it through antitrust reviews, but the two have been working to appease the FCC and the deal is looking more and more likely.
The FCC recently approved TWX’s plans to sell its broadcast station WPCH-TV, which is a big deal because WPCH-TV is the only FCC-licensed broadcast station that belongs to Time Warner. That means that the companies will be able to move forward without waiting for further FCC approval of the deal.
The deal will still need to make it through an antitrust review by the Department of Justice, but many see the FCC’s decision to approve the TWX sale as a good indication that the two will get a green light from the DOJ.
AT&T Maximizes Shareholder Value
AT&T has been a reliable dividend stock for the past 30 years, raising its dividend payment regularly each year. At the moment T stock offers a 4.9% dividend yield, and although the firm’s payout ratio is relatively high, the firm’s strong cashflow means it is sustainable.
Plus, once the TWX merge is complete, AT&T should be substantially more profitable, allowing more room for increased dividend payments and further securing what has already become a reliable source of income for long-term investors.
The Bottom Line
In an industry that has become a great deal riskier, AT&T is a solid bet. The company has proven itself as a reliable dividend investment and its TWX acquisition will make the firm an even stronger presence in the industry. Investors who want to venture into the telecom sector should consider T stock as one of the most stable picks in the industry.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
