AT&T Inc. (T) has a "fat yield" that will help you avoid running out of money in retirement, suggests Rida Morwa, editor of High Dividend Opportunities.
In the data-driven world, telecommunications has become an increasingly essential industry that is impervious to business cycles. Since 2010, there has been a mind-boggling 22,000x increase in the average household data consumption, and this trend is only set to increase.
In the U.S., just a few big companies control much of the telecom industry and can charge higher prices for these services. On a national level, we only have three major carriers — AT&T, Verizon (VZ) and T-Mobile (TMUS) — that have over 98% of the market share.
This may be upsetting for a consumer, but it is great for an investor. The big U.S. telecom group is an excellent dividend steward, and we want to collect reliable income from this essential utility of the information age.
The Nation's 2G and 3G infrastructure are being shut down and upgraded to 4G/5G. This will bring a strong device refresh cycle, boosting wireless adoption. With this, we expect data consumption to climb, providing tailwinds for AT&T's wireless operating margins.
During Q3, AT&T's wireless revenue YoY growth was its highest (5.6%) in more than a decade, indicating that the catalysts are in action. Additionally, the company has been working to reduce its operating expenses and is on track to deliver +4 billion out of its run rate target of $6 billion in cost savings by the end of 2022.
AT&T's balance sheet has significantly improved with a reduction of $25 billion in debt YTD. The company is on track to achieve the target $14 billion free cash flow for 2022, which adequately supports the $8 billion annual dividend payments. As debt decreases and operating margins improve, long-term investors can expect growing dividends from this telecom giant.
Despite economic downturns and recession, internet usage will remain high, and bills will be paid. We will collect handsome dividends from this sticky connectivity infrastructure. The stock is cheaply valued at a forward PE of 7.3x, making it a tremendous bargain at current prices.
AT&T demonstrates strong financial flexibility and is an excellent inflation-fighter with its 5.7% yield. Prior to the spin-off of Warner Brothers Discovery (WBD), AT&T was a Dividend Aristocrat providing regular annual dividend hikes. We look for the stock to resume its pattern next year, with the company returning to its dividend-hiking roots.
