AT&T - A Deeper Dive
One of my favorite stocks for long term, relatively safe dividends and share upside potential is AT&T (T). I thought it would be good to go into a deeper dive into why T is such a great stock to hold in your portfolio long-term, especially now since the market is ignoring value stocks in favor of the technology growth high-fliers.
T is a holding company, which engages in the provision of telecommunications media and technology service. It operates through the following segments: Communications, WarnerMedia, Latin America and Xandr. The Communications segment provides services to businesses and consumers located in the U.S., or in U.S. territories, and businesses globally. The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats. The Latin America segment provides entertainment and wireless services outside of the U.S. The Xandar segment provides advertising services. The company was founded in 1983 and is headquartered in Dallas, TX.
Here are some of T's key financial highlights:
Current price - $29.78
Price/Earnings Ratio Current - 15.7x (compared to current S&P 500 P/E of 29.2)
Dividend - $2.08/share/year
Annual Dividend Yield - 6.98%
Market Cap - $211.5B
Operating Cash Flow (Annual - 2019) - $48.7B
Free Cash Flow (Annual - 2019) - $29B
The company, while highly leveraged due to an acquisition spree over the last several years, has plenty of cash flow to service the debt. T has also been using its massive free cash flow and selling non-core assets to deleverage, is refinancing for more favorable rates in the current low interest rate environment and maintains a good medium investment grade credit rating with a stable outlook from all three rating agencies. T stands to benefit from the deployment of new 5G technology, which should be a catalyst for its mobile phone service and also has some upside with its entry in the streaming wars - HBO Max. T ranks #25 by market cap on the list of S&P 500 companies and ranks #14 on the list of Top 50 global brands.
Some investors have questioned the sustainability of a 7% dividend yield. At this point in the COVID-19 Recession, while many other companies have cut their dividends, T has not cut its dividend after raising it by a penny in 10/19. T has a very long history of steadily increasing its dividend and says it will continue to support the dividend in the future, understanding the importance of it to the Company's shareholders. For all these reasons, T seems like a great core holding for a value / income oriented investor.
Of course, you will need to do your own homework and invest where you feel comfortable. I'm not recommending any particular stock or strategy and full disclosure, I do own / manage long positions in T. Stay safe, healthy and positive.
I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.
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