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AT&T: Oh Happy Day

May 04, 2021 8:00 AM ETAT&T Inc. (T)227 Comments
Stefan Redlich profile picture
Stefan Redlich


  • AT&T started the year better than expected.
  • HBO Max is riding the momentum and the reopening of theaters helped the WarnerMedia segment to return to growth.
  • AT&T remains a truly cash-flow resilient company and its almost 7% dividend remains secure as the company's capital allocation strategy focuses on deleveraging.
  • The stock has a lot of potential at this stage and investors shouldn't miss to lock in an almost 7% dividend yield.
HBO Max WarnerMedia Investor Day Presentation
Photo by Presley Ann/Getty Images Entertainment via Getty Images

AT&T (NYSE:T) finally managed to break the $30 barrier in late 2020 and overall euphoric stock market sentiment provided some good support for the stock prior to its Q1/2021 earnings print.

Significantly better than expected earnings both

This article was written by

Stefan Redlich profile picture
I am working as a Business Analyst and Data Engineer in Germany and have started to build up a portfolio focused on Dividend Growth, both on the high and low-end yield spectrum. Primary focus is on Blue Chips with long-reaching dividend track records. I have been investing for 2 years and have been standing on the sidelines for way too long before. I love developing spreadsheets in Google and Excel to analyze financial performance and integrate these two sources with each other!Happy to connect on the various channels!

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.

I am not offering financial advice but only my personal opinion. Investors may take further aspects and their own due diligence into consideration before making a decision.

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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Comments (227)

I’m thrilled abt the merger knowing as a shareholder I will still collect a dividend and now receive 71% of a streaming company lead by David Z which will only enhance my portfolio
Dividend to be cut between 46-56%...Are you still happy?
Stefan Redlich profile picture
@ElPablo224 No, not really. I will rebalance into W.P. Carey I believe if the stock recovers a bit.
Well T is holding up relatively well with the rest of the market tanking.
Throwing Ketchup profile picture
@wwn2001 "Yes, other than that... How did you like the play Mrs. Lincoln?"
Sue2! That's some mighty fine brew you've been drinking. Share with us what brand.
@TheWallStreetKid As stated-GROW UP.
Aside this morning, 5/11/21 S&P down pre open 1.12%. You need not a stupid mouth but CASH to buy.
To Stephan.
Living in Germany. Does not really matter but your tax is far different than what exists in the United States. In terms of investments, you can only spend what is NET, after TAXES. The US is one of only a few countries that tax savings, dividends. I'm not sure, I read it years ago. I think Germany is another.
Taxes, world wide, history, REALITY, it is simple. People want, they always have, and they want anyone but them to pay for it. Aside, to all, I am not in the now made evil by HATE a mindless emotion, top 1%.
Throwing Ketchup profile picture
@SUE2 Here's a thought. I lived in a small city for last 20 years. During that time, as a taxpayer, I helped pay for a new and impressive Middle School, a new court house, a new jail, a new fire house, new city offices, and a new library. They were all needed, as those precious buildings were all well past their useful life, and in some cases, irredeemable. My working-age generation during that time felt put upon, as the previous two or three generations didn't do the work THEY should have done with their tax dollars; THEY preferred to say "NO!" to the work until it had to be done, and all in short order. In other words.... NOTHING much has been done in this country for infrastructure for generations, since Roosevelt and Eisenhower, in some cases. Most of our major airports, railroads, highways, HEALTH CARE, etc., are 3rd World worthy. I don't mind paying taxes toward this stuff, but I'm disgusted with the politicians who've NOT had the guts to do it until NOW and all at ONCE
On June 8th 2020, T had a 1 year high of $33.24
Let's see if T will make a new high, or retreat.
T on fire! Happy days!!
SUE2 ....May I suggest you stop investing. Go back into knitting or dog walking. Your instincts about stocks are way-off-base. You sold at the wrong time. Try tax deferred annuities or CD's. T is soaring.
@TheWallStreetKid May I suggest, you grow up. Your post is a clear sign of both immaturity and stupidity. As well as a weak self image.
A suggestion I've never met anyone i can't learn something from.
Sometimes the lesson is not to be like them.
Oh, reality, I can buy and sell you-CHILD.
@TheWallStreetKid A part of knowledge. Of GROWING UP is realizing what you do not know and facing it. You might look up the TTM on T.
the PROFIT divided by the number of shares. For T it is MINUS 594.29
They are LOOSING 594.29 per share. The dividend is 6.47%.
What do you THINK is better odds. Whatever the management has said,
which in the real world, not to be confused with High School for the dividend to be cut which will cause the stock to dive or the stock to go up? Once again in case you do not understand. I suggest you grow up.
@SUE2 for what it’s worth, IMO his post was condescending and inappropriate.
I appreciate your view. I hold some (T). The dividend is very enticing. However the company though they say they will not cut the dividend, they are borrowing money to pay the dividend-not a viable business model. I sold my most expensive shares when it hit MY sell price of 31.99. I will ALLOW our government to pay roughly 30% of my loss on those shares. Someone bought them. I hope they do well with them as I still hold far more than I sold.
@SUE2 Their dividend coverage ratio is in the 50s and 60s.
Jstic profile picture
@SUE2 FCF more than covers the dividend. They are not borrowing anything to pay it. Not sure where you are getting your information from but it's way off.

The only time a company borrows to pay a dividend is when FCF does not cover the cost of the dividend payouts. That's when you see a dividend cut. ATT isn't even close to that point as they are only using roughly 60% of their FCF for the dividend. That leaves 40% to pay down debt or other uses.

Don't take my word for it, check for yourself.
cyoung1 profile picture
@SUE2 They have plenty of cash flow for yearly operations (including required principal/interest payments on debt), and-- with what's left over (called Free Cash Flow) they fund the dividend, which takes no more than ~60% of it. The remainder is available to pay down some of the debt, or make small capital investments/ acquisitions. Very large investments, such as the spectrum auction (and years ago, the purchase of Time/Warner), are done almost entirely through new debt, which has brought them to the position they are now- with a high level of debt on the books. Presumably, however, these large investments are few and far between, and in the coming years they can begin to make great strides on retiring a large portion of their debt. In the meantime, those investments should begin to add tremendously to their revenue, helping retire the debt they caused, and add enough value to the overall enterprise that the future AT&T with them in the fold is a much stronger and more profitable company. If all goes as planned, all of our investments in T should be worth quite a bit more 5 or 10 years from now. If not... well, that's the risk you take in order to have a chance for a large return. In the meantime, we get to collect 6-7% in dividends, so I feel it is a risk worth taking.
cyoung1 profile picture
T is the ultimate cash cow, and they were retiring their debt at a pretty good rate-- until they had to overpay for spectrum in the C-Band auction. So, it looks like very little progress is being made. I don't think people are focusing enough on the fact that a one-time expense like that (which they HAD to do) won't happen again for many years- if ever, so unless T goes on another acquisition spree (never say never...), their plan is to now focus on deleveraging, and with the new income streams finally coming in from HBO Max, etc., their debt situation could be very different in just a few short years. I think in a couple of years we’re going to look back on this time as a once in a lifetime buying opportunity. Long T, in multiple accounts!
@cyoung1 I believe that there are going to be additional Spectrum Auctions in the not too distant future, and T management has said that they "may" participate.
@cyoung1 Even if there are future spectrum sales, other competitors will also have to participate to stay competitive. It is a pressure on all of them. As far as other things to buy, I hope that they are more restrained in the future. I would like to see T put in a penny raise at the end of this year to keep up its dividend status and also focus on debt. Retire high interest debt. Pay off as much as possible without sacrificing future earnings.
@cyoung1 This is a rough stretch for T. They did not raise the dividend because they needed the cash to service the debt incurred for borrowing the cash for the spectrum auction. This tells me that if they do not generate increasing cash the debt repayment will suffer and in time the dividend may actually be cut. I'm not ready to say that is anything more than a possibility at this time and for me to pay strict attention to the quarterly results.
T is in a market that is being disrupted by 5g having the potential to compete with traditional home broadband and fiber. I do not see that as a bad thing, in fact if may help shed costs, but will have a number of bumps along the way. T has expanded it's portfolio of services to help with the reduction of legacy networking, and we need to see results as they leverage this portfolio.
T is taking off. Broke out above recent high. Looks like this move higher is for real this time. Bought in at $29 earlier. Get on the T Train!
craftbrewinfo profile picture
Sold this dog this past winter. Those funds became Home Depot. NOW I sleep well
@craftbrewinfo Until it tanks. 2% dividend.
@craftbrewinfo Bought more this past winter and spring. Sleep well with the capital increase (share price) and the continuing dividend.
craftbrewinfo profile picture
@GRComments Respect. Not good for me, but to each their own
Xxfactor profile picture
Why is T tanking right now? Down almost 10% post market?
@Xxfactor Really, you think session to session moves tells you anything about any name? Buy index funds, you'll be happier.
Xxfactor profile picture
@mmenchel mind your own business it was a mistake in sa's system. And yes a 10% drop in 5 minutes is a big deal on a stock that never moves more than a couple dollars
I enjoyed your article. I own 2,500 shares of $T. I bought the shares years ago. I am glad I decided not to sell the shares 5 years ago. $T not much recent growth, but a good dividend payer.
Just poked over $32. Muuahah
I like the info. T is still my largest position by far. GLTA
Are you still a child looking at your favorite toys through the store window and unable to get yourself to walk into the toy store? Paralyzed by your own deficit in Emotional Intelligence? You can change. Think - baby steps. If you miss the next 10 dollars of gain in T you might really feel even more shame. So, my suggestion, respectfully, would be for you to buy 40 or 50 shares of T. You can overcome your own lack of EQ. Take a position - and liberate yourself from your
own self-destructive mentality.
Would it make sense for ATT to spin off or sell Time Warner? The debt of ATT would plummet, removing much of the perceived risk. TW would be more like Netflix and Disney and command a much higher PE multiple than as a competent of ATT. Is it time to remove the 2016 merger and realize the two companies are more valuable as two separate companies rather than one.
The TW acquisition was valued at $107.50 per share for $85.4 billion total. At the the time (2017), TW's earnings were about $6.80 per share so the $107.50 purchase price was about 16 times earnings. Netflix' PE multiple is around 60. The S&P 500 PE multiple is about 39. So if TW is still earning what they did in 2017 and we apply a PE multiple OF 35; TW is currently worth $6.80 X 35 =
$238 per share or a bit over double what ATT paid for it. Why is this not reflected in the market value of ATT?
Oldstockguru profile picture
@ba419adv I purchased AT&T in 1951 and used compound interest with the dividend until they split into eight companies in 1984 and received 7 shares of each of the 7 new companies for each 100 shares of AT&T and kelp my shares of AT&T at a lower value and yes you are correct as my eight companies where much more valuable than one company. That split gave me more money than my family will ever need and I retired in 1984 and still hold all the companies that came our of that split like T, VZ, LUMN & others that all pay me a great dividend every three months.
Long T and this move may be sustained, technically it looks like a breakout.

However, let's not forget it's the same management (ok different CEO, but essentially the same) that overpaid for Direct TV 6 years ago and cost T ~$50 billion based on the valuation of the sale of a minority stake to TPG (details link below).

@geodan85 The idea of a breakout and re-forming the bottom from the long-lamented $27 to say, $30, is a lovely idea. Mr. Redlich might have been timely if not prescient in his analysis. I've long thought market sentiment would respond if TW can begin to show some mojo, and the reopening gambit for the movie theaters and the US in general may be catalysts for T to begin to revert to a more normal P/E and yield.

As someone who is in at $27 and change, the question is whether to add and raise my cost basis and lower my YOC from the very pleasant 8%. One can hope the bargain days are in the rear view mirror and T can put a dent in the debt bears' arguments now that the 5G spectrum auction is over. HBO is advertising like crazy, BTW. Let's hope it works.
@geodan85 If reading the technicals is of any use, you must be swimming in profits day to day

Sounds like you are a skeptic regarding technical analysis. It's never a stand alone tool and fundamentals trump technicals since they can result in a basis change for a stock's valuation.

However, technical analysis has a self for fulling aspect, if enough people (or computer algorithms) follow it and act upon "signals" it works. Also, every stock has trading ranges after big moves (either way) or are in well defined up or down pattern trends over time, so again it's a useful "road map" when building or liquidating positions.

"Swimming in profits day to day" let's say I had a very successful career as a position trader for a Wall Street bulge bracket firm managing / trading firm capital in the trading book I was responsible for, and to say I didn't look at technicals / charts would be less then honest.

I am retired now, and don't run a long / short book in my personal portfolio or "day trade", but I still range / swing trade my positions by "jobbing" them to manage / adjust cost basis while maintaining core positions in stocks and industries I believe are in sustained up trends in secular bull markets. Within secular bull (or bear) markets they will be cyclical counter trend moves and technical analysis can help you identify and hopefully anticipate these moves or at least figure out when they are exhausted or concluded.
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