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AT&T Has A Bright Future

Jun. 08, 2017 2:55 PM ETAT&T Inc. (T)36 Comments
Andy Wong profile picture
Andy Wong


  • AT&T has very positive growth prospects.
  • While the company's $105 billion debt load seems like a lot, it is very manageable considering it is only 2.5x its EBITDA.
  • The 5% dividend is safe.

AT&T (NYSE:T) is one of the few blue chip companies with a safe 5% dividend and various positive growth prospects. AT&T's growth prospects are one of the best among blue chip telecom companies. Growth prospects and dividend safety should, in my opinion, be the number one concern for dividend investors. This is because revenue growth largely dictates a company's ability to increase its dividend payments.

Growth prospects

Much has been said recently about Verizon (VZ) winning a bidding war against AT&T. In order to avoid reiterating this, I will redirect to this article. Long story short, Verizon's acquisition of Straight Path was a strategic move aimed at creating an advantage in developing a 5G network. Still, it is unclear that this will result in a sustainable competitive advantage for Verizon versus AT&T. In any case, AT&T has many growth opportunities that they are exploring and investors should not be too focused on one acquisition.

Of course, only a small portion of this is organic. The biggest source of growth will come from DirecTV and the acquisition of Time Warner, which I talked about in a previous article. Just because these are acquisitions, doesn't mean that AT&T simply "purchased" revenue without additional strategic rational as I wrote previously:

"The company aims to become a global leader and the premier integrated communications company in the world. With DirecTV, the company was able to have their best ever fourth quarter in terms of churn rate. This company credits this success to their TV Everywhere application, data free TV and DirecTV Now. With TWX the company is acquiring even more high quality networks like HBO (Game of Thrones) and all the Turner Networks."

In other words, AT&T is looking to create a vertically integrated company through these acquisitions.

Another interesting thing is that AT&T

This article was written by

Andy Wong profile picture
Andy Wong is a top 2% highly influential financial analyst in the whole world. Ranked number #104 out of 6,454 financial analysts tracked globally. He has consistently outperformed the stock market. His performance, tracked independently by tipranks.com, comes in at a success rate of 74% and an average return of 28%. Because of this, he has garnered a following of over 3,000 investors that follow him to have access to his next investment idea. Andy Wong aims to bring his trading and fundamental analysis skills to the crypto world. In 2018, he founded Adept Crypto, a one-stop crypto shop which helps market participants digest news, receive trading signals as well as have access to deep dive ICO research.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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Comments (36)

stan11 profile picture
AT&T's 5% dividend is NOT safe. You can't believe everything you read on the SA. Based upon net cash to forecast of its free cash flows over the next five years divided by the total expected dividends over the next five years, the dividend safety and growth are VERY POOR. Additionally, the 12month trailing dividend payout ratio of 96% does not leave much room for error margin. Watching earnings and CF carefully and holding for now. WHEN T drops back to the mid 30's, I'll reevaluate.
For those of you complaining of T's customer service, just try Sprint's service. It sucks. And I live in Dallas. You get what you pay for.
I like the numbers, but I don't understand how anyone who has actually dealt with this company as a consumer could invest in them. They are far and away the worst utility company I deal with. By far.
We had 7 family members on our ATT plan. 3 have switched to other carriers and the rest of us will follow suit. ATT has the WORST customer service on the planet, imo. The links to do things online, such as add an authorized user, almost never work. Then, you call the phone number and are put on hold for an eternity, only to finally talk to someone who has no answers, then puts you on hold again. The last time we called regarding a charge, it was a 50 minute run around. Who has time for that? I held T stock for many years, but dumped it 10 years ago. I could never invest in this company again.
ALL the carriers are ruthless, provide horrid customer service, so it doesn't matter. When I had Comcast, they TERMINATED me as a customer because I kept complaining "too much" about their garbage service that had constant problems. They are all ruthless and grab every penny they can.
wait another few years and you will see how safe the 5% dividend is when interest rates rise and the massive debt burden becomes a problem. Close to 200 billion is not for me or the smart money! You are going to get a very big surprise.
peapaw profile picture
The reports of T's death have been greatly exaggerated....
2 concerns as a T long: First, while TW is a great content asset T is paying top valuation and stressing its balance sheet. Okay if there are significant synergies but there are little to none on the expense side. Being a former M&A exec, acquisitions based on revenue synergies are subject to far more execution risk in terms of amount and time. Second, watch out doing business in Mexico. From Telecom experience I can tell you despite being our "NAFTA neighbor" there is significant country risk relative to other LA countries such as Chile, Peru or Panama. Typically Mexico is very accommodating during the investment phase but once profitable just try to get money out. Still long but concerned.
09 Jun. 2017
Pro forma, unsecured debt post Time Warner merger is ~ $190B and probably a notch downgrade in credit to BBB. They have no plan or ability to deleverage this behemoth of a balance sheet. Recipe for disaster once rates move up and/or credit spreads widen out.
Croswell I said I did not like T as a long term investment (5 years) out. It has only been maybe 1 year. It was around 35.25 not 32. T may have ran to 42 what does it matter if it ran to 82 when its now trading around 38. You have to wait 5 years to prove my thesis wrong thats why I don't need to comment daily. See you in 4 more years!
pauliedeuce profile picture
Again 5% yield. What's your savings account getting you?
Motto, we both know you said to Trade T at 32 for Qualcomm at 60 a few years ago. Boy was that a great call.
Motto, back in 2015 you said T was likely going to 27-30 per share in the SHORT term. It went to almost 44 after taht... I hope nobody listened to you.

A price decline is also very possible at 27 to 30 in the short term with a fed interest rate raise or earnings miss.
Nov 17, 2015. 08:20 AMLink
Why I Am Buying AT&T
James Leswing profile picture
The acuquision of Direct Tv, and now TW will generate a great deal of revenue and expand outward away from the cellular price wars .
I have been buying T and VZ. Both have good divies.
peapaw profile picture
The telecom sector is high Capex and high debt. Always has been and always will be. And for those worried about dividend safety T not only paid but increased the dividend during the 2008-09 recession. Throw in the fact they are a Dividend Aristocrat T is a pretty safe and boring 5+% dividend paying stock. I like boring.

Long T
The "debt problem" is a non-issue. ATT is now officially a growth and income Company. It has changed rather dramatically in the past 4 years. Investors should feel cheered. T is becoming
a juggernaut of innovation and disruption before our eyes! Buy shares with absolute confidence.
The debt is higher than you stated. Are you looking at all the unfunded pension obligations also? 150 Billion + in total.
Motto! You said T was a sell at 32 before it ran to 42. Why don't you ever defend any of your comments here?
pauliedeuce profile picture
Telecoms always carry higher debt than traditional firms. Ma Bell isn't going anywhere and stop scaring people out of a sound investment. Market corrects 20% $T will correct along with it while still offering a 5%+ yield and a faster recovery. Long and adding
Benedetto59 profile picture
I too would be adding if it pulls back.
Thank you. I looked it up on dividend.com and confirmed that it was 68. However on yahoo finance, it says a 95% payout ratio.
TJ Burke profile picture
Don't trust yahoo finance. Ever. Always verify
pauliedeuce profile picture
No problem, and agree with T.J. Burke above. Check multiple sites/sources and never trust yahoo finance
Wonder if VZ can fix Y! finance... or even wants to.
They seem to have very little leftover after paying dividends. That is concerning especially in a cellular / data pricing war.
pauliedeuce profile picture
They pay roughly 68% of FCF on the dividend and are currently creating new revenue streams. $T will be fine
techy46 profile picture
So how much CF goes to capital improvements?
dunnhaupt profile picture
Is it true that they had to borrow money to pay the dividend? I would not call that "safe".
08 Jun. 2017
The article says they had 3.2 billion is free cash flow to pay dividends. What are you talking about?
techy46 profile picture
It's not true.
08 Jun. 2017
Longer ranging, FREE wifi, will kill the carrier.
Served by whose fiber backhaul? On whose towers? Connected to the internet via whose core network?
techy46 profile picture
It's demise has been predicted for almost 50 years!
Nice article, Thanks.
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