Can AT&T’s Stock Keep Rising?
For those of us who haven’t bought into AT&T Inc. (NYSE:T) yet and who have—unfortunately—missed out on growing our initial investments by more than a quarter so far this year, it isn’t too late to consider this secure, high-growth stock.
While AT&T stock has gone sideways in recent weeks, rising just 1.5% in the last 30-day stretch, the telecom giant’s share price is up 25.4% year-to-date and has been enjoying a gradual growth trajectory since last summer. Its current price target is sitting comfortably at $48.35 per share, up from its previous closing price of $43.16 per share.
Quarterly Performance Up, Yet Again
AT&T matched Wall Street forecasts when it released its second-quarter earnings last month, bringing in adjusted earnings of $0.72 per share. The earnings matched analysts’ expectations, while total revenue, reported at $40.50 billion, fell just short of the consensus estimate calling for $40.67 billion.
The Dallas-based Internet, phone, and television services provider has been adapting to the constantly evolving—and fiercely competitive—telecom sector. AT&T Inc. has been losing its less-profitable feature phone customers, but quickly replacing and surpassing its losses by adding almost 800,000 smartphone subscriptions during the quarter. Smartphone users are much more valuable, so the shift has been profitable, as smartphone subscriptions generate a significantly higher average revenue per user (ARPU) than feature phones. (Source: “AT&T Reports Second-Quarter Results,” AT&T Inc., August 4, 2016.)
Outside of its domestic operations, AT&T has been continuing to dominate Latin America. AT&T stock increased its Latin American revenue by eight percent compared to the first quarter of 2016 and added 20 new cities to its LTE coverage zone in Mexico. At the moment, the company has 61 cities deployed in Mexico, with that number expected to grow to more than 160 before the end of 2016.
Feel at Ease with AT&T’s High-Yielding Dividends
If the appreciation on your original investment in T stock is not convincing enough, just look at the massive investor payout that AT&T stock pays its shareholders. In the company’s most recent dividend payment, investors received $0.48 per share, which is nearly 4.5% of the current AT&T common stock price. (Source: “AT&T Financial and Operational Results,” AT&T Inc., August 4, 2016.)
Compared to the standard government bond rate, quarterly, there is no question that AT&T stock pays a much heftier yield. Its current cash position and fiscal guidance—a $2.5-billion run rate in 2018—make a pretty convincing case that AT&T stock’s dividend is not going to weaken anytime soon.
AT&T Now Dishing Out Leading Paid-TV Service
It was first announced in 2014 that AT&T Inc. would acquire satellite TV company DirecTV, and the investment appears to be paying off. The transaction, which made AT&T the top paid-TV provider in the country, closed last July. The deal brought AT&T stock a new robust revenue stream too, as the company has gained almost one million total satellite television subscribers since the acquisition was completed. During the company’s second fiscal quarter alone, AT&T added 342,000 new DirecTV customers.
Now, more than 80% of AT&T’s television customers are using the DirecTV satellite service, boosting its ability to bundle its wireless and television services. The company’s profitable bundling strategy, in which customers combine the company’s offerings to create a package, has been successful since the DirecTV acquisition. According to the company’s chief executive officer, John Stevens, AT&T has more than five million bundled subscribers.
“Consolidated revenues are growing at a double-digit pace thanks to our acquisition of DIRECTV,” added Stevens. “This comes even with pressure from lower equipment sales and foreign exchange.” (Source: “Edited Transcript of T earnings conference call or presentation 21-Jul-16 8:30pm GMT,” Yahoo! Finance, July 21, 2016.)
On top of its current offerings, the company also intends on launching a streaming television service called “DirecTV Now” that could earn AT&T some of the market share currently being filled with Americans opting for on-demand television services. The new service is expected to be available later this year. (Source: “AT&T: DirecTV Now Will Be a Game Changer,” Multichannel News, July 21, 2016.)
Why I’m Bullish on AT&T Stock
While some investors may shy away from investing in a company that seems to be peaking, there is too much potential for future growth when it comes to T stock. With expanding services abroad, a growing userbase of bundled wireless and television customers, and upcoming service launches that are creating quite a buzz, the company is well positioned to continue its non-stop growth into the second half of 2016—and beyond.
As a “safe haven” stock, shares of AT&T have flown through the recently volatile market environment with grace. If AT&T’s stock price’s double-digit growth is not a good enough reason to add this company to your radar, the company’s generous dividends and minimal risk may convince you to give T stock a second look.