For years, AT&T (NYSE:T) has made its living as a classic dividend stock. The company is part of the exclusive Dividend Aristocrat club. This means the company has issued and increased its dividend for at least 25 consecutive years. That’s been a nice reward for owners of AT&T stock.
But recently, investors have become frustrated with the company because it hasn’t provided a lot of growth. In fact, for investors that held the stock from the beginning of 2015 until the beginning of 2019, they were down 10%.
The reason I chose the beginning of 2019 as my end point for that example is significant. Starting in 2019, AT&T stock was put on the 5G hype train and climbed nearly 28%. However, rather than hold those gains, the stock has dropped more than that in 2020 and is currently trading for under $30 per share.
And a reason for this lack of growth is because AT&T seemed to lose its focus. And that left the company ill prepared to reap all the benefits of 5G technology.
Jack of All Trades
Technology changes quickly, but that doesn’t quite describe the bad timing of the company’s DirecTV acquisition in 2015. AT&T was attempting to provide a value for consumers that went beyond price. So having DirecTV, along with the company’s home internet service, gave AT&T a great bundle to offer.
Unfortunately, the company made the acquisition shortly before the cord-cutting revolution kicked into high gear. DirecTV began to shed customers. Being the sole provider of the National Football League’s NFL Sunday Ticket has probably kept the damage from being worse. But there’s no reason to not believe the analysts who project DirecTV is worth less today than the $64 billion that AT&T paid for it.
If DirecTV was the company’s only issue, things would be clearer. Unfortunately, the company doubled down on that error with the purchase of assets from WarnerMedia. To be fair, this has helped the company get into the streaming wars with the recently launched HBO Max. This goes along with the company’s own streaming service AT&T TV.
5G Buys Some Time
That’s the bad news. The good news is in two parts. Three if you count its dividend. First, the company is under new leadership. And it is taking steps to unwind the company’s forays into other areas. That will take time.
Fortunately, 5G will provide the mobile phone unit with the likelihood of sales growth for the next couple of years. While the big picture benefits of 5G go well beyond mobile phones, consumers will want 5G phones. In fact, they will need to have 5G phones to get any benefit of 5G.
That creates real (not implied) demand. And while the network is getting built out (hence the TV commercials), there is not a supply to meet the demand. And that won’t change much in 2021. But according to Gartner’s research, the market for 5G smartphones will grow from to 56% by 2023.
This gives AT&T a very nice window to clean up some of the debt on its balance sheet and position itself to take better advantage of 5G.
When Should You Buy AT&T Stock?
The answer to that question I believe centers on your opinion about the overall market direction. If you perceive that the market could be in for a rough year next year, then it may make sense to buy AT&T now. If you do it for no other reason, you can capture the dividend.
But if you’re looking for growth, you might want to wait until you know the company has an ample supply of 5G phones to sell. And that may be a little while yet. Either way, owning AT&T stock is a question of when, not if.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.