Why Aren't You in AT&T Yet?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Analysts are bullish on the stock and for the same reasons I am. Both Hilliard Lyons and Janco Partners give AT&T (NYSE: T) a buy rating. Okay, it does not take a rocket scientist to see that the stock is moving up in price -- one look at the charts show that. Here are the reasons these two companies give for being bullish on AT&T:
- A continued favorable fundamental outlook
- Above average dividend yield
- General desirability of domestic dividend
- Right now it is a “risk-off stock
Above Average Dividend Yield
The telecommunications sector is the highest dividend yielding sector in the S&P 500 index right now. Other companies in this sector are also generously sharing profits. Verizon (NYSE: VZ) has been bullish through the bearish month of May with a dividend yield of 4.57%. CenturyLink (NYSE: CTL), another competitor, has not been as bullish as AT&T and Verizon but has continued to hold its own — moving sideways through the global bearish trend and is also yielding a nice 7.5% yield. AT&T is offering a dividend yield of 4.9%. As long as our fixed income investments (bonds, T-bills, CDs) stay at record lows, investors will continue to gravitate toward alternatives and one of them is dividend paying stocks. Since this sector is so generous with them, investors are going to be calling.
General Desirability for Domestic Dividend
I believe “domestic” is the key here. Without sounding redundant we know about the global economic slowdown. It has hurt the larger international companies in general. Investors will look toward these companies for growth and dividends. It makes sense to think of the international companies as more balanced in poor economic conditions. But many of the stocks have not down well and have succumbed to the weakening economies in Europe primarily and in Asia. As an example, United Technologies (NYSE: UTX) is seeing a slowdown in jet engine sales as airlines conserve cash. With a forwarding dividend of 2.9% investors have gone toward this multinational company. But it continues to see sales slow in different areas it works in. Even General Electric’s aviation division has felt the sting of a slowing jet market. GE’s dividend is around 3.4%
This is not something that just suddenly stormed in and took companies by surprise. General Electric recently just broke out of a 10 week bearish trend with slowing sales in Europe that started in the last quarter of 2011. 3M (NYSE: MMM) another multi-national company, is also in a 10 week (peak and valley) bearish trend because of global influence. But this is not something that caught these large companies by surprise. Last December 3M forecasted slow economic growth for 2012. Last December CEO George Buckley warned of “weak economic growth next year.” So it may not be a surprise but it has an adverse affect upon the international companies that investors look toward for stability and balance.
But the U.S.economy has been the one that has supplied a sense of stability. I am not going to say that it is recovering nicely, but it has done much better than other world regions and companies like AT&T are profiting nicely. Since the beginning of the year the stock has continued to grow nicely. It started off strong in the fourth quarter with a 50% increase in its (best ever) quarter and nearly doubles the previous year’s sales. It has continued right into this year with first quarter revenue up 5.3% and earnings also beating expectations. To those of you who keep up with earnings and revenue regularly, this is not new. But the fact that they are generating revenue here in the states like they are makes a big difference.
The Idea of a “Risk Off” Stock
The headwinds are just not blowing against AT&T or most other telecommunication stocks right now. In fact, they are moving with the segment.
Right now, the risks for these stocks are quite low. They offer good cash flow even in slow growth. We have a healthy number of wireless devices that subscribers continue to depend upon and pay for wireless minutes. Packaging together such things as land-line, mobile, cable and any other number of services builds a loyal customer base that maintains a steady cash flow. Considering the limited European risk exposure along with steady cash flow and high dividends, investors are going to flock here.
Tailwinds are moving with AT&T and the rest of the telecom stocks right now. If you are not riding the wave, you better learn to surf fast! It would be to your advantage!
johnmylant has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend 3M Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.