INVESTMENT HACKS

With the markets turning down over the last month, it’s time to start considering which stocks to buy on the dip. AT&T, Inc. (T – Research Report) offers investors some of everything: a company with a solid foundation, a history of increasing dividend payments, and a sanguine outlook from the analysts and bloggers. Let’s dive in to the TipRanks database and look at the details.

AT&T is best known as the corporate descendant of the old Bell telephone monopolies. The conglomerate was broken up in 1982 under anti-trust laws, with AT&T emerging as a slimmed-down version of its former self. The company has, over the years, reconstituted much of its original telephone system, and now has interests in mobile phones and wireless internet service. AT&T is now the second largest mobile provider in the US.

This past summer, AT&T completed an $85 billion acquisition of the Time Warner company. The deal brought Time Warner’s properties – Warner Bros., HBO, and Turner Television – under AT&T’s umbrella. It’s a combination of proven creative content capability with a major wireless and mobile distribution network. It should be interesting to see how it evolves.

A Shaky Third Quarter

AT&T reported a solid increase in revenue for the Q3, showing a gain of 15% over the same quarter last year. The raw number was $45.7 billion. Earnings per share came in at 90 cents. These numbers showed a slight beat in revenue, but also a slight miss in EPS. Investors responded by selling, and the stock fell 3.5% after the Q3 report.

The selloff may or may not have been the fairest assessment. AT&T’s cash flow was down, which depressed the EPS, but that was easily attributed to the $85 billion spend on the Time Warner deal. At the same time, the company does carry $185 billion in debt. The sheer size of that is worrisome, but AT&T’s $39 billion in cash flow is more than sufficient to roll over the bonds and maintain the dividend payouts.

While T’s share price is currently low, at $30, the analyst consensus of “Moderate Buy’ is based on 7 ‘buy’ ratings against 4 ‘hold’ ratings. The average price target is $36, giving T an 18% upside potential.

View T Price Target & Analyst Ratings Detail

A Key Dividend Stock

The financial bloggers like AT&T and they take care to point out the quality of the company’s dividends. AT&T has paid out a dividend every quarter since 1985. The current payment, of $0.50 per share, has shown steady increases since Q4 of 2003. As the bloggers point out, AT&T is one of the most reliable dividend stocks in the markets.

Writing at the Motley Fool, Keith Noonan (Track Record & Ratings) says, “With 34 years of consecutive annual payout increases, AT&T has established a reputation for rewarding its shareholders with regular dividend growth. Signs point to the company’s ability to build on that reputation and continue to increase its payout for the foreseeable future. That’s an enticing prospect in light of a roughly 6% yield.”

Nicholas Ward (Track Record & Ratings), in a post at Seeking Alpha, elaborates on the subject of dividends: “[T]he yield appears to be quite safe, with a 57% earnings payout ratio. T generates more than enough free cash flow to meet its dividend obligations while paying down significant portions of its debt.”

Ward also looks back at the Time Warner deal, with its potential for combining content with distribution to drive growth: “Only time will tell if the Time Warner acquisition is the growth driver that this company needs to separate itself from the competition in the telecom space, but in the meantime, I’m more than happy to collect this hefty dividend while I wait.”

The 50 cents per share dividend may not seem like much but makes the annualized payout per share a solid $2. At a share price of $30, that’s a 6.7% yield – making AT&T an attractive stock for long-term holdings.

A Solid Stock at a Bargain Price

T has received some encouraging comments from the analysts, too. Timothy Horan (Track Record & Ratings) of Oppenheimer looked through the Q3 data, the recent acquisition of Time Warner, and forward guidance, before saying in conclusion, “T has a solid balance sheet and an attractive dividend yield. It has the ability to integrate its services in unique ways, and we see substantial room to use virtualized technologies to greatly reduce operating and capital expenditures.” Horan set a price target of $41 on T, indicating a 37% upside.

This is well in line with the company’s guidance, which looks toward an FY19 EPS of $3.50 and free cash flow of $21 billion.

At the same time Horan released his report, Guggenheim’s Mike McCormack (Track Record & Ratings) reiterated a ‘Buy’ rating on T and gave the stock a $38 price target, for a 26% upside. McCormack has as 70% success rate when recommending T, with an average return of 7%.