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Harsh Jain
Harsh Jain
Articles (172) 

AT&T: A Dividend Champion

The company's healthy P/E ratio suggests the stock still has huge upside potential

April 21, 2017 | About:

AT&T Inc. (NYSE:T) rewarded shareholders with healthy returns in 2016 as the stock was up nearly 24%. The stock, however, is down about 5% year to date, representing a good buying opportunity for shareholders.

AT&T reported fourth-quarter results in January. In the fourth quarter, the company reported earnings per share of 66 cents, in line with the analysts’ estimate. On the other hand, the company’s revenue came in at $1.8 billion, missing the analysts’ estimate by $240 million. That figure represents a drop of just 0.8% year over year.

Over the past 12 quarters, the company managed to report positive top-line growth, but that impressive streak was disrupted in the fourth quarter of fiscal 2016.

Nowadays, customers are shifting away from cable TV to streaming services. To gain benefit from this growing trend, the telecommunications giant launched its video streaming service, DirecTV Now, starting at $35 in late 2016. The company also bundled unlimited data plans with DirecTV in an effort to offer unlimited streaming without perturbing about data usage.

Recently, the company reported that its DirecTV Now has attracted more than 200,000 customers in a short span of time. The company also comprises the largest pay-TV customer base with more than 25 million TV customers. Consequently, this enormous customer base will certainly help its DirecTV Now service grow at a strong rate in the year ahead.

The company is also on its way to acquiring Time Warner (NYSE:TWX), the home of CNN and HBO, for approximately $85.5 billion. If the deal is completed, it will turn AT&T into a giant capable of both creating content and distributing it to its enormous customer base with wireless phones and satellite TV connections as well as broadband subscriptions.

As a matter of fact, every telecommunication firm is now aggressively focusing on 5G technology which will change the way to use smartphones within the very high bandwidth. To gain an early lead, the telecommunication giant recently publicized that it would buy Straight Path Communications, a holder of licenses to wireless spectrum, for $1.25 billion.

AT&T believes this acquisition will help it gather the airwaves required for a next generation network as Straight Path is one of the major holders of 28 GHz as well as 39 GHz millimeter wave spectrum which is expected to play a significant role in 5G.

AT&T’s foremost rival, Verizon Communications (NYSE:VZ), trades at the price-earnings (P/E) ratio of 15, lowest in the industry, followed by AT&T with a P/E ratio of 19. AT&T's P/E ratio is considerably less than the industry average of 25, which clearly suggest that the stock is still cheap at its current market price.

Apart from this, the stock also offers a marvelous dividend yield of 4.86%. Moreover, its payout ratio currently sits at 69%, suggesting the telecommunication giant still has plenty of room to grow its dividend in the future.

As an outcome, stockholders looking to profit from telecommunication industry should consider adding AT&T to their portfolio.

Disclosure: No position in the stocks mentioned in this article.

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