I feel sorry for those who bought AT&T (NYSE:T) shares last fall, or early this year. AT&T stock had a solid 2019, with shares posting growth of 38% for the year. And there still seemed to be upside — T shares hit the $40 range, but remained three dollars off five-year highs.
Then the market meltdown hit in March. AT&T stock plummeted. It rallied, but has had trouble all year breaking the $30 ceiling. On Oct. 28, T stock closed at $26.50, marking its lowest close of the year (even worse than March) and setting a new five-year low.
Over the past two weeks, AT&T has staged another rally, putting together a nearly 7% gain. That has some investors considering buying shares in anticipation of the stock making a return to its levels from late 2019 and early 2020.
I don’t think it’s worth the risk. This isn’t a strong company knocked down by the novel coronavirus pandemic. AT&T stock has an “F” rating in Portfolio Grader because it faces challenges that are much larger and longer lasting than a pandemic. I don’t see it returning to $40 any time soon, let alone kicking into growth mode.
Yes, the Pandemic Is Hurting AT&T
AT&T is feeling pain from the pandemic. That’s not unusual — many companies have been hit by the combination of lockdowns and a lack of shoppers in stores.
The lasting impact has been in the company’s Warner Media division. The pandemic has wreaked havoc on theatrical releases in the movie industry. As a result, in its latest quarter AT&T saw revenue from that division drop to $7.5 billion from $8.4 billion a year ago. The company’s CEO told financial analysts not to expect an improvement in the near future:
“We’re not optimistic. We’re not … expecting a huge recovery in theatrical moving into the early part of next year.“
AT&T stock did surge on this third-quarter earnings report, but less than a week later plummeted to its new low. Investors are realizing that the company’s problems run deeper than the pandemic.
One of the fundamental problems facing AT&T is competition. All of its lines of business face stiffer competition than ever. As a result of consolidation, it’s dropped down to being just the third largest wireless provider in America. There’s a streaming services war underway, with huge media companies, entertainment conglomerates and tech giants vying for customers. That puts pressure on AT&T’s offerings like HBO Max. Its DirectTV acquisition has been a bust, piling on more debt while bleeding subscribers.
In other words, the fierce competition it faces is turning everything from 5G to video streaming into a hard-fought battle for AT&T. It’s difficult to grow revenue, profits and share value in such an environment.
What About the Dividend?
If AT&T stock has a bright side for investors, its the company’s dividend. After announcing a 52-cent payment in the latest quarter, AT&T is offering a $2.08 annual dividend. At the current price of T shares ($28.91), that represents a yield of over 7%. Historically, AT&T has hiked that annual dividend for 35 years in a row.
The question here is whether the company can maintain that generous dividend. This is a topic of some dispute. There are concerns that with strong competition hitting virtually all of AT&T’s businesses, that dividend payout may be under threat. The company’s massive debt load ($164 billion as of the beginning of September) is worrisome as well.
That being said, some — including InvestorPlace contributor Chris Lau — feel that dividend appears safe. At least for now.
Bottom Line on AT&T Stock
Despite general and industry-specific trends that might pique interest in AT&T — a potential vaccine for the coronavirus, high demand for the iPhone 12, a surge in popularity of streaming video services and the spotlight on 5G as a must-have upgrade — not many analysts are jumping on the AT&T bandwagon. Among those tracked by The Wall Street Journal, it is a consensus hold. Their average 12-month price forecast of $31.17 offers little in the way of upside.
The only reason I would have entertained an investment in AT&T stock is for its dividend, but even that is far from a sure thing these days.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.