In some regards, the election of Donald Trump and the looming implementation of his policies could be a bit confusing for owners of AT&T Inc. (NYSE:T), as well as for owners of Time Warner Inc (NYSE:TWX). But that doesn’t necessarily mean you should shy away from AT&T stock.
Why are things confusing? Two of Trump’s appointments to his transition team are both staunchly against restrictive regulations within the telecom industry, and are notably anti-net-neutrality.
Yet, the President-elect has also made it clear he’s against the intended merger of Time Warner and AT&T. His rationale is simply that the pairing could lead to the kinds of anti-competitive and anti-diversity behavior that tends to materialize when the medium and the messenger are the same.
Owners of AT&T stock can take some comfort in knowing that it’s not his call, nor the Federal Communications Commission’s. The Department of Justice is the final arbiter, and it would make its case in a courtroom.
Thing is, while most eyes are on the brewing regulatory fight, most T stock holders have missed another key facet of a Donald Trump Presidency. That is, while he hates anti-competitive mergers, he hates cumbersome regulations even more.
A Dovish Business Environment for T Stock
AT&T Chief Financial Officer John Stephens left no doubt with his comments made to a crowd at last week’s Barclays Conference. He noted:
“With the appearance of what might be a more rational and a more measured regulatory environment, we’re very optimistic as to what that might mean for our customers, for investment, and quite frankly for our revenues — for our opportunity to grow our business.”
Stephens was responding to a consistent message Trump delivered during has candidacy, which called for the end of debilitating regulation for most industries.
And while it might be a bet self-serving for a company’s CFO to say it of his employer, he’s not the only one to make such comments. Robert Baird analyst William Power recently upgraded AT&T, explaining:
“After many years of avoiding the telcos due to competitive concerns, we are upgrading AT&T following a confluence of events that we believe significantly improve the company’s prospects over the coming years. We are positive on the recent media moves, and believe the Trump focus on deregulation and lower tax rates could provide a multiplier effect for T’s businesses.”
The Time Warner Deal May Happen Anyway
President-elect Donald Trump may not like it, but he can’t legally prevent the pairing of Time Warner and T. That matter falls squarely in the jurisdiction of the Department of Justice, which already approved a relatively comparable union of Comcast Corporation (NASDAQ:CMCSA) and NBC Universal in 2011.
A different time and different environment? Definitely, though that in itself is not cause to bar AT&T and Time Warner from teaming up now.
Indeed, if anything, the Comcast/NBC-Universal deal proves that the merging of a content maker and a content distributor can be done. Few have balked at Comcast’s decisions since then. The crux of the matter is ensuring that T doesn’t favor its own video content over other studios. That’s a fairly simple matter to measure — at least it has been for Comcast’s watchdogs.
That’s arguably why the discussion between AT&T CEO Randall Stephenson, Time Warner CEO Jeff Bewkes and the Senate Judiciary subcommittee last week went relatively well. Although lawmakers expressed the predictable concerns, none of the committee members expressed outright opposition to the merger. Perhaps the most damning comment came from Vermont Senator Patrick Leahy, who offered this still-tempered opinion:
“This proposed massive consolidation of distribution and content raises serious questions. The impact of this transaction on competition, consumer choice, and privacy across the media, pay TV, wireless and broadband industries must be carefully analyzed.”
If that’s the extent of the headwind, owners of AT&T stock have good reason to be optimistic.
Bottom Line for AT&T Stock
With or without the Time Warner merger, T stock looks like a compelling investment right now. The dividend yield of 4.7% is healthy, and T is more than adequately covering that payout with real after-tax earnings.
If Trump can further pare back in regulatory burdens at the same time he cuts corporate tax rates more than in half, not only would the dividend payout for AT&T stock improve, but the organization would also have more to invest in its own growth.
There’s not a lot not to like about T stock.
As of this writing, James Brumley holds a position in T stock.
