AT&T Inc. is the largest telecom player in the world, by revenue. It is a leading U.S. based communications and digital entertainment service provider, offering mobile, broadband, subscription TV services and live TV offering.
AT&T has reorganized its business into four units, Communications (84% of 2018 revenues – wireless, wireline and entertainment in the US and businesses globally), WarnerMedia (11%), Latin America (4%- entertainment and wireless services outside of the U.S.), and Xandr (1%). About 90% of AT&T’s revenues are derived from services while equipment constitutes the remaining 10%.
AT&T perfectly fits into the definition of a “modern media company” offering premium content, direct to customer relationship, advertising and high speed networks to its customers, including companies, government, and wholesale and individual subscribers.Investment Data
- Opportunity Score: 56
- Ticker: NYSE:T
- Sector: Communication Services
- Industry: Communication Services
- Market Cap: 250.32B
- P/E: 12.80
- Dividend Yield: 5.95
- Dividend Payout Ratio: 76.12
- FFO Payout Ratio: Dividend Snapshot Members Only
- FCF Payout Ratio: Dividend Snapshot Members Only
- Chowder Score: Dividend Snapshot Members Only
- Piotroski-F Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
With nearly four decades of its existence, AT&T has built a strong brand reputation and a loyal customer base. The company is known for its seamless service, uninterrupted internet, and efficient network operations. Huge entry barriers in the form of extensive infrastructure and costly spectrum auctions form a wide moat around AT&T’s business. The company’s ability to deliver great content over high speed networks has enabled deeper customer engagement.
Through AT&T Communications, the company provides mobile, broadband, video and other communications services to consumers and companies in the U.S. The company continues to invest heavily in 5G wireless and fiber network. It was the first to deploy mobile 5G in the U.S. and plans to expand nationwide deployment in 2020. As the best wireless solution provider in the U.S., AT&T is favorably placed to benefit from the rapid growth in the wireless industry. With the acquisition of the media giant, Time Warner Inc. in June 2018, AT&T has registered positive synergies across media and entertainment integration.
AT&T’s customer base consists of 171 million wireless subscribers in North America (with more than 153 million in the U.S.) and 3 million business customers. AT&T Latin America provides pay-TV services across 11 countries and territories in Latin America and the Caribbean. Acquisition of Time Warner and growth in Xandr segment drove revenues in 2018. The company earns most of its revenues in the form of monthly subscriptions, which provides good visibility to the cash flow.
In order to improve customer experience, AT&T provides live TV offerings to a wide range of streaming services such as DIRECTV NOW, Watch TV and HBO NOW. The company is also looking at launching an SVOD service, offering WarnerMedia’s rich collection of films, television series, documentaries, etc. by the end of 2019.
AT&T Inc. is the only S&P500 Dividend Aristocrat in the telecom sector. The telecom giant has not only been paying dividends for over the last three decades but also increasing them for the past 35 consecutive years. The company has an impressive dividend yield of 6.3% and a dividend payout ratio of 71%. It last raised its dividend by 2% and has achieved a dividend growth of 2.3% CAGR over the last ten years.
Growth in wireless, broadband and WarnerMedia’s premium content should support AT&T’s future dividend payouts. Given a huge portfolio of services, AT&T is in a good position to serve its customers’ appetite for growing video viewing with its broad spectrum of video entertainment services ranging from mobile-centric and live TV streaming packages, to traditional linear video and soon to be launched SVOD service. The company continues to invest significant capital in expanding its network capacity and secure spectrum to meet its long-term needs.
AT&T’s acquisition of DirecTV and Time Warner has benefited the company by allowing it to pool more services into existing customer packages and add significant customer value. The company should continue to grow given the strong demand for instant connectivity and higher speeds through its fiber and wireless network expansion. WarnerMedia’s premium content should also drive revenue growth in the future.
AT&T biggest competition is Verizon Communications, a leading diversified communications services in the U.S. The company faces intense competitive pressure in the wireless and video services. In its legacy voice and data business, AT&T competes with wireless, cable and VoIP providers who are capable of providing comparable services at lower prices. In addition, it also competes with media and entertainment companies for digital entertainment services.
AT&T is an integrated communications company providing end to end high-speed internet, next-generation TV and other smart solutions to its customers. The company is looking at better ways to integrate media and entertainment for consumers, content creators, distributors and advertisers. AT&T should continue its dividend growth pace in the low single digit range, given the increasing demand for mobile data and the company’s leading position in the communications industry.
Aside from the income you earn from AT&T, you are better off buying the S&P500 index. If your stock lags behind the index, you are taking unnecessary risks unless you are looking for income above and beyond bonds or other fixed income.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.