AT&T Inc. (T) Continues To Be an Interesting Dividend Play

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AT&T Inc. (NYSE:T) is one of the few companies that is more or less delivering earnings either in line or above the Street analysts’ estimations. One of the reasons for it was the proper execution of its plan. The telecom operator has handled the competition very well and that it was also positioned well to take advantage of the investments it has made. In the last several years, it spent $120 billion on capital investment, and that should translate into higher margins and profitability since the expenses were also under the control of it. Aside from these, the company also acquired DIRECTV (NASDAQ:DTV) to help leverage its alliance with content providers to establish a compelling portfolio of mobile for its consumers. Also, the continuous dividend makes it an interesting stock to watch out for the current year.

Entry In To Streaming Video Business

AT&T Inc. (NYSE:T) has already entered into a new business of streaming video business to take on the established companies like Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN). The move comes on the heels of the leader Verizon Communications Inc. (NYSE:VZ)’s launching of Go90 service promising free entertainment content to its users. The leading telecom operator has already witnessed more than two million downloads of the service. The service was offered free of cost to its subscribers though supported by ads. The company seems to be waiting for significant traction to happen before starting to offer a paid premium service in the current year.

Based on the performance of the leader in the streaming video-on-demand service, AT&T Inc. (NYSE:T) is also likely to witness a similar performance. The confidence was because of their customer base and that there was no impact on the subscribers’ data plan. The objective appears to hope to attract millennials, as well as, the teenagers. The company is preparing itself to launch a premium service very soon. It would have to compete with Time Warner Cable Inc (NYSE:TWC) and others in the sesctor. The advantage is that it has DIRECTV (NASDAQ:DTV) under its fold. That position itself slightly ahead of Verizon Communications Inc. (NYSE:VZ) and can take a cue to avoid doing the same things or improve upon it.

Taping Homes That Don’t Have Pay-TV

Another key factor is that AT&T Inc. (NYSE:T) is branching out itself into other fields and did not restrict itself to the telecom services. That also places it to move into the 21st century. The immediate objective might be to match or top the services provided by Verizon and possibly take out some market share from it. Only then, the second-ranked telecom service provider can think of competing with the leaders like Netflix, Inc. (NASDAQ:NFLX) or Amazon.com, Inc. (NASDAQ:AMZN). The company also appears to be following the rights to provide content for individuals who don’t have a TV subscription through satellite.

That is a clear indication that AT&T Inc. (NYSE:T) wanted to focus on homes that don’t have pay TV subscriptions in the United States. The company’s CEO, Randall Stephenson, believes that there would be 30 million homes that it can tap into the kind of content that those customers would expect. The telecom firm has also planned to unveil a premium service in the United States in the current year. The CEO indicated earlier that its big bundle content will have one of the two ways. He said that it would offer the bundle to the homes and the same content to a mobile device too. Randall believes that this was the best over-the-top content portfolio that is currently available in the America.

Other Key Factors To Watch

AT&T Inc. (NYSE:T) is considered as a low-beta stock providing a dividend yield of 5.6%. Its revenue and margin expansion in the near-term in respect of the DIRECTV (NASDAQ:DTV) acquisition along with the potential growth of cash flow in the long-term places itself well in the sector. Secondly, the company could make use of the acquired cable firm’s relationships with content providers so that it could establish a compelling portfolio of mobile content for its consumers. The company is closing the two-year contract, and the subscribers would be forced to opt for the fresh plan. Similarly, the telecom service provider decided to put an end to subsidies to the device. That means customers will have to opt for Next financing. That would enable it to boost its average revenue per user in the current year.

The reason for such confidence was that AT&T Inc. (NYSE:T) was able to witness over six percentage points expansion in EBITDA service margin due to the adoption of Next financing. The expectation is that it would continue to grow at the accelerated rate of adoption will also increase. As a result of DIRECTV (NASDAQ:DTV) acquisition and other factors, there is hope that its earnings will grow at the top end of the teens in the next few years. Big investors have also boosted their stake in the company. For instance, Eagle Asset Management lifted its stake by 255%, Modera Wealth Management added 1.7%, Gerstein Fisher also increased its interest by 265%, and Meag Munich Ergo Kapitalanlagegesellschaft added 5.9% besides ING Groep boosted its interest by 72.3% in the September quarter. The company, which has been paying a dividend since 1881, has increased its dividend rate for the eleventh straight years.

Conclusion

AT&T Inc. (NYSE:T) is well-placed to realize gains from both its investments, as well as, the acquisition of DIRECTV (NASDAQ:DTV). In fact, the purchase of the cable firm will add to the margins of the consolidated EBITDA and operating income. The company would also realize better free cash flow. Those growth prospects will effectively ensure the continuous payout of the dividend that provided a good yield.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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