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Top Picks 2020: AT&T (T)
01/22/2020 5:00 am EST
Ben Reynolds chose AT&T (T) as his Top Pick for conservative investors in 2019; the stock is up 37% over the past year. The editor of Sure Dividend again turns to the telecom firm as a favorite for 2020.
AT&T dominates the U.S. telecom industry; the company has over 100 million customers, and generates over $180 billion in annual revenue; it offers a variety of services including cable, Internet, and wireless phone, observes
It is a highly profitable company and has developed a reputation for consistent, if unspectacular, growth. However, we believe the massive $81 billion acquisition of Time Warner will provide AT&T with compelling growth in 2020 and beyond.
AT&T is already a telecom giant and will become a giant in content as well. Time Warner owns multiple valuable content properties, such as CNN and HBO. Time Warner also owns the Warner Bros. movie studio and sports rights across the NFL, NBA, MLB, and NCAA.
AT&T recently updated its three-year financial targets. The company expects to grow its adjusted earnings per share by approximately 10% per year through 2022, at the midpoint of its earnings forecast.
It also expects free cash flow of $30 billion to $32 billion by 2022. Its high level of free cash flow will allow the company to pay down debt, invest in growth, and continue to reward shareholders with a high dividend payout.
We view AT&T as a significantly undervalued stock, trading for a price-to-earnings ratio just above 10. We see potential for a higher valuation multiple in 2020, due to the company’s accelerating growth. In addition, AT&T has a 5.3% dividend yield, and the company has increased its dividend each year for 36 years in a row.
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