I never get too excited when talking about telecom giant AT&T Inc. (NYSE:T). After all, the stock has been the poster-child for a “going nowhere” stock for the past 10 years. During that time frame, the S&P 500 has risen 65% while the NASDAQ 100 has jumped about 185% higher. T stock is down 5% over the same period.
But it is this low-volatility profile which makes AT&T stock an attractive option for risk-adverse investors. Investors don’t rush into AT&T Inc. expecting the stock price to shoot rapidly higher. This is a stable stock with a strong dividend. It’s a suitable investment option for those with low-risk appetites.
But is it anything more than a solid dividend play? I don’t think so. If you are looking to generate alpha, you should probably go ahead and cross T stock off your list.
I think the thesis on T stock is that simple. If you’re exceptionally risk-adverse and just want to collect a 5% dividend every year on a largely sideways stock, then buy and hold AT&T. If you aren’t so risk-adverse and want to generate alpha, then don’t even consider AT&T stock as an investment option (maybe a trading opportunity, but not a long-term buy-and-hold).
AT&T Isn’t Going Anywhere Anytime Soon
AT&T Inc. is a telco giant that isn’t going anywhere anytime soon.
Yes, cord-cutting trends are weighing on operations and those headwinds will continue into perpetuity. Revenues from legacy wire-line solutions are also in free fall, as consumers shift away from landline to entirely mobile. But traditional TV and wire-line offerings are just a fraction of the whole AT&T growth story.
There is the whole wireless growth story, which continues to gain momentum as the shift to mobile accelerates. There is the fiber build-out narrative, as AT&T has the largest fiber footprint in the country and is ahead of schedule to reach 12.5 million new fiber customer locations by mid-2019.
Meanwhile, international ops are scaling nicely. The Time Warner Inc (NYSE:TWX) deal should close soon. The 5G evolution is underway, and AT&T is set to be a leading player in this evolution.
All in all, AT&T’s operations are stable. Headwinds and tailwinds should offset one another, so this business isn’t due for any sort of operational collapse any time soon. That makes T a relatively safe stock, because it’s trading at a reasonable, low-growth multiple.
Current Trends Affecting AT&T Inc. Aren’t Going to Change
The same low-growth, low-multiple profile that makes T stock relatively safe also makes it relatively unexciting.
Revenue growth projections over the next several years? Flat.
Earnings growth projections over the next several years? Modest, in the mid-single digits.
Those aren’t the sort of growth numbers that investors are going to pay a premium for. And those growth numbers aren’t going to be revised upward anytime soon. The trends affecting AT&T Inc. today (both good and bad) aren’t going to change all that much over the next several years. Cord-cutting is here to stay. So is the shift from wire-line to wireless. Global fiber optic demand will keep increasing. So will demand for faster wireless speeds.
Overall, then, AT&T Inc. is a company with low-growth prospects into perpetuity. These low-growth prospects are appropriately priced into T stock at 7 times trailing EBITDA.
Bottom Line on T Stock
T stock isn’t going to generate any serious alpha any time soon, but the stock does provide a stable place for investors to park their money while reaping a roughly 5% dividend.
So before deciding whether or not T stock is a buy, decide what type of investor you are. That will help you make up your mind on AT&T stock.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
