AT&T Looks South

04/08/2015 8:00 am EST

Focus: STOCKS

Khoa Nguyen

Investment Analyst, Investing Daily

Telecommunications may not be the most glamorous business, but if a solid and growing dividend excites you, then you will love this featured member of our Income Portfolio, explains Khoa Nguyen, editor of Personal Finance.

Last year, AT&T (T) bought the satellite TV provider DirecTV for $48.5 billion. The deal will give AT&T access to 20 million of DirecTV’s video subscribers in the US.

Due to high programming costs, AT&T’s video business hasn’t been profitable, but management believes adding DirecTV will give it a thriving customer base to sell to. This will also allow AT&T to bundle its traditional services with DirecTV’s offerings.

But the big news is that DirecTV is already one of the biggest cable providers in Latin America. DirecTV will give the company a foothold there, with 18 million subscribers in Central and South America, a region where the number of subscribers grew 95% last year.

To further its expansion south, AT&T also acquired Mexican wireless company Grupo Iusacell SA for $2.5 billion in November and Nextel Mexico for $1.9 billion last month.

AT&T’s expansion into Mexico will create the first-ever North American Mobile Service, which will cover more than 400 million consumers and businesses in Mexico and the US.

The bottom-line impact of all this isn’t yet clear, but AT&T is making strong moves to increase investor value. An increase in cash flow will improve AT&T’s ability to pay its extremely safe and generous 5.8% dividend.

With AT&T, you shouldn’t expect huge payout hikes, but the company has provided investors with consistent dividend growth of at least 2.2% annually for the past ten years.

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