AT&T Inc. (NYSE:T) reports earnings after the market closes Oct. 24. This will probably be the last time it reports before it completes its acquisition of Time Warner Inc (NYSE:TWX) and AT&T stock gains a higher public profile as owner of CNN.
The $85.4 billion deal was due to close Oct. 22, but now the company says it needs an extension for “a short time” in order to get regulatory approval. It will likely get that approval, and the deal will be done.
Meanwhile, the company is expected to earn about $4.5 billion, or 75-cents-per-share, on revenues of $40.33 billion. There are rumors of 77-cents-per-share in earnings, but the important number to remember is 49. That’s the quarterly dividend rate. So long as T stock exceeds that figure, your investment in it is safe.
AT&T Stock: The Dividend Is All
InvestorPlace contributor Vince Martin, who loves capital gains like some people love the Chicago Cubs, is not a fan of T stock. In fact, he calls it a collection of unattractive businesses with significant problems.
He’s right. That’s why income investors should own AT&T stock. That’s why InvestorPlace’s James Brumley owns it.
Income investors are looking for fat dividends, not capital gains. At 49-cents-per-share, T stock currently yields 5.5% on your money. That’s double the coupon rate on a 30-year government bond.
That’s huge.
The yield is high for all the reasons Martin cites in his story. There is fear of price competition in wireless services. The cable assets are subject to cord-cutters. DirecTv is seeing serious erosion, stuck in a niche of rural markets that don’t get cable.
AT&T stock is not a big-time buy, as Aaron Levitt writes, unless you’re looking for a safe place to put your money during the coming economic storms. There is hope that streaming, especially Time Warner’s HBO Go, can keep some of those wireless and wired customers. That’s not a big earnings catalyst.
You Need T Stock on That Wall
There is another reason to be confident about AT&T stock meeting its dividend obligations.
T is an essential utility. Even if it loses cable customers, it still has a duopoly (usually with a cable operator like Comcast Corporation (NASDAQ:CMCSA) ) on broadband internet service, and it can raise those prices. The Federal Communications Commission’s decisions against net neutrality mean AT&T can freely tie its content to its subscriptions, charging them for accessing rivals’ content.
AT&T is simply not going away.
You may want to wait until after earnings to get the best AT&T stock price. Recent natural disasters, including the Mexican earthquake, are going to hit earnings in the September and December quarters. We may be in for a negative earnings surprise, and a short-term fall in the stock price.
You’re also going to see minimal growth from this company. Over the last several years, T revenues have been growing at about 10% per year. They may grow by the low single-digits this year, or not at all.
But so long as the earnings remain above 49 cents, it can pay that dividend, and AT&T has been ferociously devoted to keeping that dividend. Through the worst of the 2008 market crash, the dividend went up, from 40-cents-per-share to 41 cents.
The dividend, in short, is management’s highest priority. Operating cash flow came in at nearly $40 billion in 2016. The dividend is very affordable no matter what the short-term pressures may be.
The Bottom Line
Regardless of how high or low the AT&T stock price is, it’s certainly not a stock for everyone. If you’re looking for a fat capital gain, look elsewhere. But if you want safety and a regular return, as more and more baby boomers like me prefer, this may be the best stock in the world to own.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
