Wireless communications giant AT&T, Inc. (NYSE:T) is not going to impress investors with breathtaking growth, but T stock has nonetheless become too cheap for smart investors to ignore, especially those who value strong dividends.
AT&T stock closed Friday at $38.24, up 0.76%. The shares have declined 9% year-to-date, trailing the 7% rise of the S&P 500 index.
And if you’ve held T stock over the past year, you’re down just 1%, while the S&P has returned 14%. All told, Wall Street has not been enamored with AT&T’s growth prospects. But with T stock now trading 13% below its 52-week high of $43.98, AT&T’s dividend yield is now at 5.13%, which is more than twice the 2% average yield of the S&P 500 index.
Reasons to Love T Stock
Dividend-hungry investors should love this recent dip on T stock, especially since the dividend itself should present tons of support for the share price at current levels. The fiercely competitive wireless market, driven with the likes of market leader Verizon Communications Inc. (NYSE:VZ) and smaller carriers such as T-Mobile US Inc (NASDAQ:TMUS) and Sprint Corp (NYSE:S), has pressured AT&T’s growth prospects.
The increased pressure led T to delivering a top-line miss in the first quarter. And it hasn’t helped that Verizon has snuck in to steal Straight Path Communications Inc (NYSEMKT:STRP) from AT&T. Still, aside from the T’s strong dividend, the company is also making moves to improve its growth position.
In an effort to become a premier Technology, Media and Telecom (TMT) provider, AT&T has begun to invest in technology to launch a commercial 5G network in the next four years. According to company executive Brian Daly, who spoke at 5G North America trade show last week, the Texas-based company — in the second half of 2017 — plans to partner with Qualcomm, Inc. (NASDAQ:QCOM) and Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) to conduct residential tests of mobile and fixed 5G services.
Among other things, this test will help determine the whether the streaming DirecTV Now — its over-the-top video streaming service — will work well over fixed 5G connections. This can be a huge catalyst for T stock, which now trades near 52-week lows. And with a forward price-to-earnings ratio of 13, which is six points below the S&P 500, T stock looks vastly undervalued. This explains why Tigress Financial recently upgraded T stock from Underperform to Neutral.
“Longer-term, a number of key initiatives including increasing spectrum and gaining a significant portfolio of content from the Time Warner acquisition could help AT&T turn a corner,” said Tigress Financial analyst Ivan Feinseth during the upgrade.
Bottom Line for AT&T Stock
AT&T continues to spend to build its assets to sustain revenue and profit growth. As such, T stock — which is is undervalued and highly oversold at current levels — should be owned by investors who are looking for a safe dividend-payer with sustainable cash flow. And from a risk-versus-reward perspective, good luck finding another company with the combination of income and growth potential that is trading at a massive discount to the rest of the market.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
