AT&T: A Look at Recent Events and Strategies for Improved Earnings
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AT&T (NYSE: T) is a giant telecommunication company that provides telephone and data services to individuals, businesses and other telecom providers around the globe. AT&T is the second largest U.S. mobile provider, next to Verizon Wireless (NYSE: VZ). Together, Verizon and AT&T control about 61 percent of the entire wireless sector of the U.S. telecommunication market. AT&T is a solid dividend stock recently regarded as one of the top ranked dividend stocks for income oriented investors. It has a history of strong and consistent dividend payouts as well as huge free cash flows, though the rate at which the company grows its revenue has declined recently due to a reduction in the number of new subscribers.
AT&T Subscriber Data Reports and Strategies for Increasing Profit Margins
Recently, AT&T reported a gain of 553,000 customers for its U-verse Internet service. With this addition, the company ended the quarter with about 6.5 million subscribers, which helped it to reverse subscriber losses on its old DSL technology. For smartphone subscriptions, AT&T reported a decline in sales from 5.5 million smartphones in 2011 to 5.1 million, but this was a blessing in disguise because it led to an increase in profitability as the company saved money on phone subsidies. Indeed, AT&T has now become more intent on lowering its subsidies and, apart from that, the company has chosen to prolong the replacement cycle for handheld devices by imposing additional fees for upgrades. The upgrade fees improve the profit margin of the company in addition to reducing the number of customers needing upgrades for their handheld devices.
AT&T operates in an industry where gains in subscriber base have tapered off since nearly everyone now has a handheld device. However, the company has managed to increase its annual revenue per user (ARPU) for data services by about 19% over the revenue it generated in 2011, while it also grew its postpaid ARPU by 14%. The improved growth in revenues was achieved through improved smartphone penetration, where AT&T’s postpaid customer base has risen by about 62 percent compared to the 50 percent it gained in 2011. It is hoped that AT&T will continue to generate improved revenues from its Internet data services for smartphone users because these subscribers are usually heavy Internet users.
Are there any Possible Effects of Apple’s Win over Samsung on Telecom Companies?
The outcome of San Jose’s Apple (NASDAQ: AAPL) vs. Samsung patent lawsuit is now globally known, but the overall effect on telecom companies like AT&T, Verizon Wireless and Sprint (NYSE: S) with regard to Android penetration is yet to be fully revealed; it’s likely, though, that the verdict will leave telecom companies tied to the aprons of Apple for a longer time to come if the verdict received the approval of the higher courts. Already, AT&T, Verizon and Sprint are on Apple’s team after each company made payments that ran into billions of dollars to Apple for iPhones, but not having a strong competitor that can compete favorably with Apple in the mobile space is what telecom carriers should be concerned about.
AT&T’s Recent Bullish Run
Since last April, T stock has been on a bullish run with only occasional dips as it moves upwards with price gains. The bullish trend is strong and sustainable considering the impeccable free cash flows the company generates every quarter. To strengthen shareholder value, the company bought back its own shares, worth about $4.25 billion, earlier this year, making itself one of the few reliable dividend payers available on the market. AT&T’s dividend yield is 4.7% compared to Verizon’s 4.5%. Its quarterly dividend payouts have been estimated to be about 72% of its regularly available free cash flows. The rate at which AT&T increases dividend payouts is 4.6% each year on average for the last five years. Though AT&T isn’t debt free, its operating annual cash flow of about $34 billion on an average basis leaves it with free cash flow of about $17 billion after making deductions for varying expenses. Regular dividend payouts to shareholders are assured, and the company has the financial capacity to continue to improve shareholder worth by investing more in share buybacks even if an increase in subscriber base isn’t feasible now.
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