Gordon Pape Rings Up AT&T

05/16/2017 2:50 am EST

Focus: INCOME

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

AT&T (T) is the largest telecom company in the U.S., with more than 120 million wireless customers. It provides services in some 225 countries and territories and employs 243,000 people, explains Gordon Pape, editor of Internet Wealth Builder.

AT&T bills itself as the world's largest provider of pay TV.  When I last reviewed the stock in early October it was trading at $40.61. I felt at the time that the price run-up over the summer had been overdone and advised retaining positions but not buying more. The shares have trended slightly down since that time.

The company released first-quarter results in late April, and both revenue and profits were down on a year-over-year basis. Consolidated revenue came in at $39.4 billion, down from $40.5 billion in the same period of 2016. Management blamed the drop on "record-low equipment sales in wireless."

First-quarter net income totaled $3.5 billion ($0.56 per share, fully diluted), compared with $3.8 billion ($0.61 per share) in the year-ago quarter. Adjusted earnings, which strip out a number of one-time costs, were $0.74 a share versus $0.72 last year.

Cash from operating activities was $9.2 billion in the first quarter, and capital expenditures were $6 billion. Free cash flow was $3.2 billion for the quarter. For the full year, the company expects free cash flow in the $18 billion range and mid-single-digit growth in earnings per share.

The company increased its quarterly dividend by a penny a share, to $0.49 ($1.96 per year) effective with the January payment. The yield at the current price is 5.08%.

The pullback in the share price and the attractive yield make this stock a Buy once again for conservative investors who want U.S. dollar cash flow.

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