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Is AT&T Stock a Sell as T-Mobile Deal Yanked?

Actually, dividend investors might want to buy in now

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Besides, a 6.2% dividend as of last week could become even more plump if shares sell off across the next few days. True, the only substantive growth in store for AT&T is through mergers like the T-Mobile deal — but full-year 2011 earnings are tracking $2.32 per share, up about 20% from EPS of $1.94 in fiscal 2007 right before the financial crisis. Revenue is set to top $126 billion in 2011, vs. almost $119 billion in 2007. It’s not like AT&T is seeing its numbers backslide, even if the stock remains down about 35% from its pre-recession peak above $42 a share.

If you are a active trader, there probably is little chance you would ever consider monkeying around in AT&T stock for a swing trade. And if you’re a long-term stock investor, there are many reasons to be skeptical. Chances are AT&T will remain sleepy and won’t set off any fireworks — or, worst-case scenario, continue to backslide if the T-Mobile deal dies for good and the market remains volatile.

However, income investors may find AT&T an important part of their portfolio even without this acquisition coming to pass. Yes, the $4 billion break-up fee is a huge chunk of change and might eat into dividend increases — but the idea that AT&T would cut its existing dividend as a result is far-fetched. With annual operating cash flow of $34 billion and $10.7 billion in cash on its books as of Sept. 30, the existing 43 cent dividend per quarter remains very safe and sustainable.

And even if 2012 doesn’t see a dividend increase, a 6.2% yield is nothing to sneeze at. Your AT&T stock will pay for itself about 12 years at that rate — and considering the 10-year T-Note is once again flirting with a yield under 2%, there aren’t a lot of alternatives these days.

I would hang on to AT&T for the dividend or consider buying more if you’re an income-oriented investor. The T-Mobile drama won’t change the fundamental fact that AT&T pays a big, reliable dividend.

Jeff Reeves is the editor of Write him at, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.

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