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Now Is A Good Time To Add This Undervalued High-Yield Dividend Aristocrat To Your Portfolio

Apr. 05, 2018 4:19 AM ETAT&T Inc. (T)TWX232 Comments


  • AT&T has struggled for years with secular declines in some of its core businesses.
  • This has led to it drastically underperforming the broader market.
  • However, while AT&T has made plenty of mistakes from a capital allocation perspective, it does face several potentially strong growth catalysts that could accelerate growth.
  • Today's valuations are pricing in almost none of the growth factors that could lead AT&T to vastly outperform expectations, accelerate dividend growth in the future, and achieve market beating total returns.
  • That being said there are plenty of risks that investors need to understand before buying AT&T.

(Source: imgflip)

The goal of my retirement portfolio is to build a diversified collection of quality, undervalued dividend growth stocks that can generate market-beating long-term total returns.

This means I'm always on the hunt for unloved dividend blue chips whose shares are pricing in cash flow growth below what I believe to be reasonable. AT&T (NYSE:T) is one such company thanks to years of struggling with negative secular trends, including increased competition in wireless and cord cutting.

ChartT Total Return Price data by YCharts

In fact, the shares have badly underperformed the S&P 500 during this bull market as Wall Street has given up believing that Ma Bell can achieve anything like the growth rates of the past.

However, there are two reasons why I think AT&T is potentially poised for far more impressive cash flow growth. Catalysts that could result in far better dividend growth and total returns than what its current share price implies.

And while AT&T continues to face certain key risks going forward, I consider today's valuation attractive enough to make it worth recommending for most diversified dividend growth portfolios.

This Is Why Wall Street Hates AT&T


2017 Result

Revenue Growth


Adjusted Net Income Growth


Free Cash Flow Growth


Adjusted EPS Growth


FCF/Share Growth


Dividend Growth


FCF Dividend Payout Ratio


(Source: earnings presentation)

AT&T posted a pretty lackluster year in 2017. While adjusted earnings and free cash flow per share both grew (thanks to cost cutting), revenue shrank. That was due to two main factors.

First the wired businesses (landline phone, internet, and cable), which account for about 50% of sales, continued to face secular declines. That's both in landline phones, but also video subscribers.

(Source: AT&T earnings presentation)

Thanks to its 2015 $49 billion

This article was written by

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Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

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I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.

My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.

With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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