I have said before that I own just one telecom. I chose a telecom that I felt would have consistent dividends that are reliable and are raised year after year. I believe I chose a dividend champion in selecting AT&T (NYSE:T), which I have discussed in many articles. I am in the name for the dividend and recently depicted the incredible strength of the company's growing dividend payments over time. However, in the last few months, the name has looked more like a growth name. But the question is why? Why has the stock, seemingly against all odds, rise well past $40 and is continuing to rise? The answer has been in my opinion the company's recent push to innovate.
Now I have covered the path to innovation over the course of many articles as I have developed the thesis. I don't want to rehash the entire course of my research here, but suffice it to say that the company has quite simply fundamentally changed in the last five years. For AT&T this much innovation in such a short period of time has been unprecedented. There are a number of purchases the company has made, as well as experiments like its new foray into the Hello Lab project. But perhaps the best move that bodes well for growth is the company's push to integrate its DirecTV content with mobile. I would be remiss if I didn't also at least mention that the company working to be first on 5g technology, in addition to pumping hundreds of millions of dollars into its infrastructure. All of this has led to my hypothesis that the company is shifting to be a global telecommunications and media company, rather than just a simple 'phone' company. And that takes me to today, where we learned that the company in short order has completed another company purchase.
We learned that AT&T has finished its purchase of a company known as Quickplay Media. This deal closed in just over a month. Now why does this matter? Well Quickplay Media, according to its website, is a company that is described as "a leader in powering over-the-top video and TV Everywhere services." Before delving into why I think this is a good synergy for AT&T I do want to point out that I was slightly perturbed by the fact that the exact cost of this purchase hasn't been shared. That said this move matters to AT&T's future bottom line, because it solidifies the two companies' existing relationship.
Currently, AT&T and Quickplay do business together, before this buyout. In my opinion the buyout is a long-term strategy. Why? Well the Quickplay platform currently supports AT&T's U-verse TV Everywhere product. Looking ahead, the platform will also support DirecTV streaming. That is where this acquisition bodes well for the company. With the expansion and focus on entertainment streaming products, Quickplay was 'collecting the tolls' from AT&T for this service, for lack of a better analogy. Over the long run it is more cost effective and is more efficient to simply own the company, hence the buyout. This is particularly true given that AT&T plans to introduce a full offering of DirecTV on mobile and a DirecTV Preview later this year. The Quickplay platform will let viewers stream content to any mobile device they own. Although AT&T will take the reins, it does plan to keep the entire staff of 350 of Quickplay on.
As AT&T continues to offer new premium video services to owners of any device and over any network, you may see more and more of these types of acquisitions as AT&T builds its infrastructure. The purchase makes operational sense with both AT&T's long-term strategy and its move to deliver video content to customers globally. Basically, AT&T will not have to reinvent the wheel, can use its existing relationship, and avoid paying recurring future fees by making this purchase. The key here is that the technology is scalable. That is important given the company's global expansion. The one ongoing concern I have? The company's debt issues. This limits the possible moves the company can feasibly make in the merger and acquisition area, but also hampers the possibility for future dividend hikes.
As always I welcome your comments.
Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."
Disclosure: I am/we are long T.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.