AT&T: The stock you either love or love to hate.
On one hand, it is a dividend aristocrat sporting a 7% plus yield raising their dividend every year for the last 36 years.
And at the same time the promise of a break-out telecom growth play whose stock price has gone nowhere for 20 years.
Value play? Technology failure? Management malpractice? Poor investment?
It’s probably somewhere in between … but change may finally be coming to this perpetual income stock teaser.
AT&T is a 5G spectrum winner … major fiber optic player … serious content programming competitor … finally getting some love from Wall Street.
3 reasons to own AT&T now
AT&T (NYSE: T) stock has long been considered an investor favorite for its versatile business and high dividend yield.
As one of the largest communication companies in the world, AT&T’s highly diversified business model which includes broadband, mobility, and media segments makes the stock a great play during periods of volatility. Investors are largely bullish on this high-growth stock for a couple of reasons:
These trends make AT&T stock a great play for value and income investors. But the company’s biggest attraction is its dividend yield. AT&T stock offers a 7% dividend yield and has a history of 36 straight years of dividend increases.
If you are looking for a promising play, here are 3 reasons to get your hands on AT&T stock:
A thriving media business
Like many other companies, AT&T was negatively impacted by the pandemic. The telecom giant’s share price declined as it issued debt to finance its investments. However, it is expected to offload this debt and focus on its high-margin segments.
To this effect, the company announced that its subsidiary, Direct TV will now be a standalone company in partnership with TPG Capital. AT&T will only own 70% of the company. This new deal will give the company $7.6 million in cash. News of this spinoff has analysts taking a more optimistic view of the stock.
Adding to this, AT&T’s HBO Max is capitalizing on a greater share of the streaming market. Once an underdog to industry giants like Disney (DIS) and Netflix (NFLX), HBO is now seeing greater demand for its streaming service. As the platform rolls out in 60 global markets this year, AT&T anticipates its audience size for HBO Max will increase by 67 million to 70 million by the end of 2021. Warner Bros. also announced that films slated for release in 2021 will premiere in theatres and on HBO concurrently.
With a thriving media business on its hands, I think AT&T stock has plenty of upside opportunity in the coming months.
5G market opportunity
As the nationwide rollout of 5G continues, AT&T looks to be among the prime beneficiaries. An upgrade to wireless technology speeds will help the company further its in-house products. AT&T earns a majority of its revenue from its wireless technology such as fiber optic and VDSL. So with the 5G market slowly but surely taking shape, AT&T is set to see a lot of positives in its core business.
In its fourth quarter, revenue in the mobility segment spiked 7.6% and total annual revenue amounted to $171.8 billion. Looking ahead, AT&T hopes to add 3 million customer locations to its existing 14 million. Given the market opportunity that exists in 5G, analysts remain optimistic about its future prospects. Analyst Bryan Kroft of Deutsche Bank gave the company a favorable rating for the attractive outlook of its core wireless business.
A healthy dividend
AT&T’s biggest attraction is its healthy dividend payout. With a 7% yield, the company earned the title of Dividend Aristocrat for its history of consistent dividend increases over 36 years. Management at the company is committed to paying the higher dividend and has managed debt flow successfully to hold the dividend increases. On April 8, AT&T declared a $0.52 per share dividend.
In addition to its attractive yield, AT&T stock is also trading at a low valuation. At its current price, it has a P/E ratio of 9.52 compared to the industry average P/E of 35.47. This is a sign that AT&T is trading at a discount. And with plenty of room to go higher in the future, it would be wise to get in while prices remain low.
AT&T is a defensive play for its infrastructure implications and non-tech focus. With a highly diversified business model, this stock is a great play, especially if we hit a rough patch in the upcoming months.
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