AT&T (T) recently traded near a 10-year low and represents a great opportunity to pick up a reliable income generator at a great price, explains Rida Morwa, editor of High Dividend Opportunities.
The yield for AT&T also is very near a 10-year high. So buying shares now ensures that your investment dollar buys you even more income.
Given the low interest-rate environment, it's hard to find higher yielding investments to generate the income investors need while still being very safe. AT&T is currently doing just that.
As income investors, we like generous dividends, but even the biggest dividend isn't much good if the company can't afford to keep paying it. And the yield on AT&T shares is so high because the price has dropped, not from any big increase in the dividend.
So the first question to be asked, is the low price justified? To determine that let's start by looking at the last earnings report to see how the company is doing right now.
Even though third quarter earnings and revenue were down, there were several bright spots. Very importantly the quarter saw growth in wireless, fiber broadband, and premium TV subscribers. HBO Max, after a slow start, is beginning to put in some impressive numbers as the slide above shows.
COVID-19 has reduced earnings by 21 cents and revenues by $2.5 billion. Those are temporary hits, and likely the cause of the share price drop. But cash flow remains strong. The dividend is well covered and that coverage on the dividend is improving.
Many of AT&T's critics point to the amount of debt it has. But since the closing of the Time Warner acquisition total debt has been reduced by $31 billion leaving only $149 billion.
It's paying down debt and extending the terms of existing debt while also getting a lower interest rate. It's investing in 5G technology and leveraging its government contracts for FirstNet to do so.
AT&T isn't a glamorous stock with huge price run-ups or big splashing new products. But it does provide a strong reliable income. The company is very well-positioned to continue paying the very generous dividend it is now paying.
Today is a unique opportunity to buy a company that is bigger and more profitable than it was 10 years ago at the price it was offered 10 years ago. The opportunity to buy AT&T at a yield of over 7% will not last for long. Buy this stock for income and upside potential!
