AT&T Inc.: The Most Generous 5G Stock? It Pays Cash

t stockLooking for the Best 5G Stocks? Read This

While 5G has been a hot topic for quite a few years, the deployment of 5G networks is still at an early stage, and the COVID-19 pandemic has added delays to the process. That means most 5G companies have yet to realize their potential. For investors searching for the best 5G stocks, it’s not easy to predict which ones will be the biggest winners.

And that, my dear reader, is why AT&T Inc. (NYSE:T) is worth a special look.

You see, AT&T is one of the largest telecommunications, media, and entertainment companies in the world. In the U.S., the company’s communications division provides mobile, TV, and broadband services to more than 100 million consumers.

At the same time, AT&T has nearly three million business customers who use its high-speed, secure connectivity, and smart solutions. In addition, the company provides wireless services in Mexico and pay-TV services in 10 countries and territories in Latin America and the Caribbean.

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In other words, AT&T Inc. runs quite an established business. And, as you’d expect, it’s a mega-cap stock. At the time of this writing, the company commands market capitalization of nearly $200.0 billion.

While smaller start-ups may achieve higher growth rates, AT&T’s entrenched position in the telecom industry means it’s well positioned to capitalize on 5G adoption.

The reason lies in the high barriers to entry of the industry. The cost of building the infrastructure needed to provide wireless services can be prohibitively high for start-ups. And even if you have the money, it’s not easy to get the regulatory approvals to start construction. Besides, proposals to build new wireless towers are often met with protests by nearby residents.

That’s why, in the U.S., the three major wireless carriers have captured most of the market, and you rarely see new entrants. With limited competition, existing players like AT&T Inc. can make oversized profits.

And even though the pandemic has delayed the rollout of 5G to an extent, the revolution has already started. Looking at AT&T, the company’s 5G networks now cover more than 200 million people in the country. (Source: “AT&T’s low-band 5G network is now available nationwide,” CNET, July 23, 2020.)

Because 5G is much faster than 4G when it comes to data transmission—theoretically, the speed can be up to 100 times faster—it’s great for streaming content. And that means smartphone users will likely consume more data when using 5G networks, which is great for a wireless carrier’s business.

And that’s not even the best part. Because while 5G adoption is still at an early stage, AT&T Inc. is already giving out cash returns in the form of dividends.

The company has a quarterly dividend rate of $0.52 per share, which translates to an annual yield of 7.4%. Note that this is a cash return that shareholders get regardless of where T stock is going.

The payout has been on the rise, too. Looking back, we see that the company has raised its dividend every year for the past 35 years. (Source: “AT&T Inc. Historical Common Dividends Data,” AT&T Inc., last accessed October 23, 2020.)

If you’re wondering how this telecom giant has been doing during the COVID-19 pandemic, there has been some good news.

The company reported earnings last week. The report showed that, in the third quarter of 2020, AT&T Inc.’s wireless segment had more than one million postpaid net additions, including 645,000 postpaid phone additions. The segment also had 245,000 prepaid net additions, including 131,000 prepaid phone additions. (Source: “AT&T Reports Third-Quarter Results,” AT&T Inc., October 22, 2020.)

AT&T generated $42.3 billion in consolidated revenue in the third quarter of this year. While the amount represented a five-percent decline year-over-year, it was better than Wall Street’s expectation of $41.6 million.

Furthermore, the company generated $8.3 billion in free cash flow for the quarter, which covered its cash dividend payout more than twice over.

AT&T’s chief executive officer, John Stankey, said, “Our strong cash flow in the quarter positions us to continue investing in our growth areas and pay down debt. We now expect 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.” (Source: Ibid.)

However you look at it, the generous dividend payments from T stock remain safe. And considering that the company has been growing the payout for more than three decades, I’d say management will likely continue that track record.

In the years ahead, 5G stocks can be volatile, but because dividends are paid in cash, AT&T allows investors to earn a return with certainty.

AT&T Inc. (NYSE:T) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

As you can see from the above chart, T stock has not exactly been a hot commodity in recent months. But that’s one of the reasons it can offer such a massive yield: at a given cash payout, a company’s dividend yield moves inversely to its share price.

With a resilient business, oversized cash payouts, and growth potential in 5G, AT&T deserves the attention of 5G stock investors.