Normally viewed as a boring dividend safe haven, telecom giant AT&T Inc. (NYSE:T) has actually been on the move recently. T stock dropped big from $40 in October to $32 in November on reasons that didn’t make much sense.

I said buy that dip because the fundamental growth story was actually improving, not deteriorating like the stock price. FirstNet was gaining momentum, as was DirecTV Now. Tax reform was coming, wireless pricing trends were stabilizing. The company had a huge forthcoming catalyst in its mobile 5G roll-out.

AT&T stock proceeded to rally from that $32 low in November all the way back to nearly $40 by the end of 2017. At $40, AT&T stock looked like it was nearing a peak. Indeed, AT&T stock has had a rocky start in 2018. While the broader markets have rallied, T stock has dropped from roughly $40 to $38.

What’s next for AT&T stock? I wouldn’t be surprised to see the stock rally from here and get into the $40’s. Here’s why…

Reasons to Like AT&T Stock

There are reasons to like AT&T stock on this dip.

Firstly, a strengthening of the underlying growth narrative warrants the sort of breakout that the stock had from November to year’s end.

Sometimes, a 25% rally in a stock in 2 months is the result of an excited investor base overbuying. But that isn’t the case with AT&T stock. This stock dropped 20% in the month before the rally, so the big year-end rally was just making up lost ground. Plus, the fundamental growth story really did get that much stronger to warrant a 25% move higher.

Tax reform is a big deal for AT&T. The company has a big tax rate (32.7% last year) on big pre-tax profits (nearly $20 billion). A cut in the corporate tax rate by 14 percentage points means T is going to have a lot more money to work with.

The repeal of net neutrality is also a big deal for AT&T. Net neutrality has hindered AT&T’s ability to profit from being a provider of the most essential thing in today’s world — the internet. With net neutrality now gone, T can charge companies higher fees for higher speeds (which leads to more money), while showing preference for and pushing its own content and services, like DirecTV Now (which also leads to more money). This will also provide a huge boost for DirecTV Now, which currently has tremendous momentum and just passed the 1-million-subscriber mark.

With the growth story now better than it has been in recent memory, AT&T stock should trade above where it has in recent memory. The 200-day exponential moving average is around $38. T stock should trade above that level.

Secondly, closely watched fundamental valuation indicators aren’t overstretched, despite the better-than-usual growth narrative.

When it comes to AT&T stock, I like to watch the dividend and free cash flow yields. Normally, T stock maxes out around a 4% dividend yield and a 6% free cash flow yield. But the dividend yield is currently above 5%, while the free cash flow yield is above 7%. That means there is more room to run in this stock before its fundamentally at a valuation peak.

Thirdly, technical indicators look good for a another leg higher in the stock.

Recently, the 20-day exponential moving average broke above the 50- and 200-day exponential moving averages. That is a big move because the 20-day EMA has been stuck below the 50- and 200-day EMAs for several months. The last time T stock experienced this sort of bullish golden cross breakout (20-day EMA breakout after months of languishing below 50- and 200-day EMAs), it rallied from $35 in December 2015 to $43 by June 2016.

Bottom Line on T Stock

The recent pullback in AT&T stock makes sense. It was on the heels of a sharp run-up. The relative strength index had jumped into overbought territory. A pullback was necessary and healthy.

Now, there are reasons to like AT&T stock on this mini-dip. Fundamentals and technicals align to paint a bullish picture for AT&T stock over the next several months.

I wouldn’t be surprised to see AT&T stock burst into the $40’s over the next several months. But as soon as this stock approaches a 4% dividend and 6% free cash flow yield, I think that will be the time to sell.

As of this writing, Luke Lango was long T.