AT&T: High Yield at Bargain Price

05/19/2016 8:00 am EST


Our latest featured recommendation is the largest telecommunications company in the US and one of the largest in the world, asserts Roy Ward, editor of Cabot Benjamin Graham Value Investor.

AT&T (T) – which offers wireless communications, data/broadband and internet services, video services, and networking -- is a very low risk stocks offering a high 5.0% yield.

AT&T’s $49 billion purchase of DIRECTV is a game-changer. DIRECTV’s massive customer base will enable AT&T to attract many new users to its wireless business.

The merger will provide $2.5 billion ($0.40 per share) of cost synergies annually starting in 2018.

AT&T’s recent $18 billion purchase of significant radio spectrum in government auctions will enable the company to pursue new business in the fast-growing “Internet of Things” market, where objects can be sensed and controlled remotely across existing network infrastructure.

AT&T boasts the fastest internet speeds in the US via its 4G network, which reaches 355 million customers. Recently, the company announced plans to expand its super-fast fiber optic broadband service, GigaPower, to 38 additional cities, tripling its city locations.

The fiber optic network is becoming the most sought-after technology for secure and fast data transmission. The company also bought wireless assets in Mexico with plans to greatly expand its telecom business in Mexico and other Latin American countries.

A Dividend Aristocrat, AT&T has increased its dividend for 33 consecutive years. The company’s board of directors recently increased the quarterly dividend by a penny, which now provides a generous 5.0% yield.

At 14.2 times current EPS and at only 6.3 times cash flow, AT&T shares are a bargain. AT&T’s stock price will likely climb 27% and reach my $49.36 sell target within one to two years.

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Roy Ward, Editor of Cabot Benjamin Graham Value Investor

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