AT&T Stock Is a Solid Defensive Investment in a Volatile Market

AT&T (NYSE:T) stock is a long-standing communications company that has been around since the late 1800s. They provide mobile communications services throughout the US and have remained one of the world’s largest telecommunications providers.

Sign of AT&T (T) posted in a wooden wall
Source: Lester Balajadia / Shutterstock.com

As a company that has consistently paid a handsome dividend, income investors highly value it. However, there has been a strategic shift recently due to new priorities leading to pressure on T stock. AT&T is a company with an expansive history of innovation and growth. The company has maintained its position as one of the largest telecommunications providers in the United States and abroad.

However, until recently, AT&T was a diversified enterprise with several segments. To maintain a strong position in its industry, the company completed several pricey transactions recently. But it did a number on its balance sheet and 5G prospects. To alleviate the damage, the company has made certain unpopular decisions that have not gone down well with investors. One of these has to do with the slashing of its much-vaunted dividend.

But these tactics are necessary. The company needs to make these tough decisions to survive and prosper. Therefore, T stock is an attractive, affordable option for a risk-averse investor.

Timely Course Correction For AT&T

AT&T has had an interesting journey in the last few years. Since it can get a bit confusing, it is important to have a short recap.

The pay-TV industry has been declining for a long time. This is due to the rise of streaming services like Netflix (NASDAQ:NFLX) and Hulu, which have taken over viewers’ attention and time.

The decline in pay-TV subscriptions has led to a decrease in ad revenue and increased piracy rates, causing serious problems for content providers.

Streaming services allow viewers to watch their favorite content whenever they want without waiting for broadcast or cable networks to air them. There is also a lower cost associated with streaming services, making them more accessible than cable or satellite subscriptions.

Against this backdrop, AT&T’s pay-TV business suffered heavy blows. John Stankey and his management team tried to arrest the decline leading to titanic acquisitions of DirecTV and Time Warner. AT&T had to take out substantial debt to fuel these transactions. Things did not work out quite as planned. Therefore, the company decided to go ahead and streamline its operations.

DirecTV, AT&T TV, and U-verse were spun off into their entity. DirecTV will be co-managed by TPG Capital (NASDAQ:TPG). AT&T will spin off WarnerMedia in 2022, forming a new company with Discovery (NASDAQ:DISCA).

These deals are expected to give the company $43 billion, which it will use to pare down debt. The company will now be able to concentrate squarely on its 5G ambitions and better compete with rivals such as Verizon Communications (NYSE: VZ) and T-Mobile US (NASDAQ:TMUS).

T Stock Will Reward the Patient Investor

The AT&T and Discovery deal will complete in the second quarter. Once that comes to pass, the company will be able to invest heavily in 5G and fiber, as part of its growth strategy, from now until 2023.

The carrier hopes to expand its fiber footprint by adding new locations every year. The plan is for the company to add 3.5 million to 4 million sites per year. In total, the goal is to increase total sites to 30 million. AT&T will be expanding its 5G network with 120 MHz of mid-band spectrum, meaning over 200 million people will have access to this state-of-the-art technology by 2023.

The year 2025 is not too far away, and things will progress well for AT&T, which expects 75% of its network to be served by fiber and 5G by that year.

To finance this growth, the company will spend approximately $24 billion in 2022 and 2023. Part of the finance will come from a substantial dividend cut. It has slashed its dividend payout by almost half to about $1.11 a share, or $8 billion annually.

The announcement hurt income investors since the company is revered among dividend-paying stocks. It still pays a healthy distribution compared to its peers and the market. Also, the decision to cut the dividend is strategic, meaning that it creates value in the long run.

The Bottom Line

AT&T is streamlining its model. On the way, there will be growing pains. However, the company is trying to make up for past mistakes by charting a new path. Along the way, there will undoubtedly be frustrations. However, if you are willing to see this one through, it will reward you in the long run.

Overall, AT&T is a mature enterprise. Do not expect triple-digit growth anytime soon. Therefore, it is important to manage your expectations here. As most investors are retreating to safer investments, T stock looks very attractive due to its excellent price, strong growth prospects, and streamlined operating model.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.


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