AT&T (T) Strong Investment

AT&T is a well-recognized and market-dominant telecommunications company.

Dividend (Consistency and Yield)

Not many companies can boast a yield over 5%, and even fewer can say that they have increased that dividend for over 25 years in a row. That’s right- AT&T is a dividend aristocrat that also pays the highest dividend in the Dow Jones Industrial Average. AT&T has increasing their dividend for 30 years straight now, and also offers an extremely high yield to accompany its DGI (Dividend Growth Investing) appeal. It’s payout ratio also does not bring up much alarm; it currently sits at 54%, which would seem less appealing in a lower-yielding company, although for AT&T is is quite enough to support the high yield. Investors would be prudent to buy this company, perhaps as a bond substitute, as the current situation with bonds is, at the least, extremely risky. Renowned investor Warren Buffett has already called bonds the “riskiest play in the market” right now, as interest rates have nowhere to go but up, and so bonds would have to go down to support the higher yields. AT&T can substitute bonds in one’s portfolio, as it already pays a higher dividend that most non-junk bonds. The underlying company is also highly profitable and poised for growth.

Low Valuation (P/E Ratio)

With a trailing P/E ratio of 10, AT&T is not the least bit pricey, especially considering that the S&P is trading at a P/E ratio of 16. Also, revenues and net income have been steadily increasing for the past 3 years, although before that earnings were rather all over the place. This shows that the company has stabilized and will probably continue its slow and steady growth into the future, therefore giving management even more money to return to shareholders through dividend increases and payouts.

DirecTV Merger (Bundle Options)

The DirecTV merger is revolutionary for AT&T. The merger creates a cable-telecommunications hybrid from what used to be two distinctively separate companies. This is extremely helpful to AT&T, as before it had very few options to offer any bundle offers, and therefore could not compete with the likes of Verizon, that already had a major foothold in both industries. Now its competitiveness much more powerful, and DirecTV’s aggressive subscriber growth should be able to bring massive cash flows to the company.

Risks (Sprint)

Sprint is poising itself to become a major nuisance in the telecommunications market. The company seems to be trying to initiate a major price war among the dominant companies, hoping to gain back precious market share through its new “disruptive prices”. Disruptive is probably the best word for the endeavor, as it will probably end up having no effect on any of Sprint’s market share, but will only force AT&T and Verizon to lower their prices in response, lowing their margins and decreasing earnings for as long as Sprint keeps it up. However, investors can take advantage of this perceived short-term weakness to buy into AT&T at a depressed share price, which would also only increase its dividend yield even more.

AT&T is a strong company that is trading at very low valuations and pays at a gigantic dividend that the company has sustained and increased for decades. The merger with DirecTV gives the company access to growth that it never had before, and investors can expect management to take advantage of these new avenues of growth to their fullest extent.