T Stock: AT&T Inc. Delivering Market-Beating Returns
AT&T Stock Benefiting From Successful Integration
AT&T Inc. (NYSE:T) is a rock-solid dividend stock with 31 years of dividend payment history. When looking for a stock that not only sends its investors a dividend check, but also offers them the potential for capital gains, AT&T stock fits the bill.
Let’s look at some of the major developments that boosted the value of T stock this year and handed investors a hefty 18% return, beating all the major indices and the company’s close rival, Verizon Communications Inc. (NYSE: VZ).
One year after its $48.5-billion takeover of DirecTV, AT&T has started to reap the benefits of this integration. With DirecTV under its belt, AT&T has become the largest pay-TV operator in the U.S.
DirecTV is the biggest purchase for AT&T since it acquired BellSouth Corp. for $66.0 billion in 2007. After its setback in 2011, when the telecom regulator disapproved AT&T’s $39.0-billion planned takeover of T-Mobile US Inc., acquiring DirecTV is proving a good bet. And it’s changing the fortunes for the second-biggest U.S. carrier.
DirectTV added a net 910,000 customers over the past year, now making up 81% of AT&T’s total TV subscribers, as of the end of June 2016.
This integration is providing drastic cost synergies for AT&T. The telecom operator was well on track to reach cost synergies of $1.5 billion by the end of this year, and it is likely to surpass $2.5 billion by the end of 2018. (Source: “AT&T Reports Second-Quarter Results,” AT&T Newsroom, July 21, 2016.)
Last month, AT&T caught up with its rivals when it abandoned the policy of charging customers when they exceed data limits. For the first time, AT&T customers can pick plans that will reduce the connection speed if they exceed their limits, rather than having to chip in extra payment. (Source: “AT&T Introduces Mobile Share Advantage,” AT&T Newsroom, August 17, 2016.)
AT&T is also revamping its service plans as it showcases the benefit of DirecTV to its huge subscriber base. The company plans to introduce new video streaming services later this year, offering customers their favorite content virtually wherever and whenever they want it.
T Stock: A Growing Global Customer Base
Another important and unique feature for investing in T stock is its diversified revenue base, which is the result of AT&T’s massive international expansion, giving it a strong foothold in the fast-growing South American markets.
Last year, AT&T completed its acquisition from NII Holdings, Inc. of companies operating under Nextel Mexico. Earlier in 2015, AT&T acquired Mexican wireless provider Iusacell as part of its strategy to create the first-ever North American Mobile Service area, which will cover more than 400 million consumers and businesses in Mexico and the U.S. (Source: “AT&T Completes Acquisition of Nextel Mexico,” AT&T Newsroom, April 30, 2015.)
These acquisitions have made AT&T a much bigger and more global business.
But what does this fundamental shift in AT&T’s business model mean for income investors going forward?
If you look at AT&T’s financials after its acquisitions, there are many positive signs that provide good incentive to remain invested in T stock and unlock the potential of future growth as this telecom giant fully integrates the acquired companies.
In the second-quarter, AT&T’s bottom line looks quite impressive. Its consolidated revenue jumped 22% to $40.5 billion. The second-quarter net income rose 11% and cash from operations surged about 13% to $10.3 billion. (Source: Ibid.)
Bottom Line on AT&T Stock
“One year after our acquisition of DirecTV, the success of the integration has exceeded our expectations,” said Randall Stephenson, AT&T’s chief executive officer. “Cost synergies are ahead of target, we’ve added nearly 1 million DirecTV subscribers since the acquisition, and our new video streaming services are scheduled to roll out later this year.” (Source: Ibid.)
With this impressive performance and a solid expansion strategy, AT&T stock looks to be a prime example of a good long-term investment for income investors who want to grow their capital and earn a decent dividend in their golden age.
With the price-to-earnings ratio of over 17, T stock looks a little expensive when you compare it with Verizon stock. But if you believe in the management’s expansion plans and its integration strategy, this valuation looks reasonable, and there is a good chance that investors will be able to benefit from the future growth potential of this American dividend aristocrat.