AT&T, Inc. (T): For stability and income
AT&T, Inc. (T: Current Price 41.82) is the largest telecommunications company in the U.S. and one of the largest in the world. The company’s AT&T Mobility division provides the largest wireless service in the U.S.
AT&T’s telecommunications services and products include wireless communications, data/broadband and internet services, video services and networking services. The company’s wireless subsidiaries provide both wireless voice and data communication services. The landline services include AT&T U-verse broadband and video and voice services. In addition, DIRECTV, the company’s new subsidiary, provides pay television in the U.S. and around the world.
AT&T’s $49 billion purchase of DIRECTV is a game-changer. Through DIRECTV’s massive customer base, AT&T is attracting many new users to its wireless business. The merger will provide $2.5 billion ($0.40 per share) of cost synergies annually starting in 2018. DIRECTV’s DirecTV-Now will launch a video streaming service over the internet that will offer HBO, Cinemax, ESPN, and other television programming. DirecTV-Now will require neither set-top boxes nor satellite dishes. The new streaming service will serve every segment of the streaming video industry and offer customers any content virtually wherever and whenever they want it. The service will compete with Dish Sling TV, Hulu and PlayStation Vue.
AT&T’s recent $18 billion purchase of significant radio spectrum in government auctions will enable the company to pursue new business in the fast-growing Internet of Things market, where objects can be sensed and controlled remotely across existing wireless infrastructure.
AT&T boasts the fastest internet speeds in the U.S. via its 4G network, which reaches 355 million customers. Recently, the company announced plans to expand its super-fast fiber optic broadband service, GigaPower, to 38 additional cities, tripling its city locations. The fiber optic network is becoming the most sought-after technology for secure and fast data transmission. The company also bought wireless assets in Mexico, and plans to greatly expand its telecom business in Mexico and other Latin American countries.
AT&T’s proposed $85 billion acquisition of Time Warner is not approved yet. The new Republican administration could be more amenable to the transaction, but the outcome is still uncertain.
Sales and EPS will likely advance 4% in 2017 before accelerating thereafter. If communications regulations are eased and corporate taxes are lowered, profits could jump significantly. In addition, AT&T’s deal to buy Time Warner could transform the phone company into a media giant, with potential to find new areas of growth. Management expects the deal to close before the end of 2017.
The company’s balance sheet is strong, and my risk rating for AT&T is Very Low. The company, a Dividend Aristocrat, has increased its dividend for 34 consecutive years. The company’s increase at the beginning of 2017 now provides a generous 4.7% yield. At 14.7 times current EPS and at only 6.2 times cash flow, AT&T shares are a bargain. Buy.