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AT & T: Shares Are Cheap With 6.5% Dividend Yield, And The Ex-Dividend Date Is Around The Corner – AT & T Inc. (NYSE: T)



AT & T (NYSE: T) has missed the mighty bull run which so many companies benefited from. While AT & T has generated a negative return over the past five years, without taking dividends into consideration, they have been reinventing themselves for the future. Through the acquisition of Time Warner, which is now the WarnerMedia segment, AT & T has transformed into a modern media company with a built-in direct to consumer vehicle. I believe AT & T is drastically underrated and, at the very least, should trade just over $ 40 per share.

Years of investments have transformed AT & T into a telecommunications powerhouse that will create value for investors

There is a revolution in technology as consumers are rapidly changing how they use technology and engage with content. Over the years, the internet has become mobile through wireless devices and connectivity. This has hit the entertainment industry as being in front of a television to watch a live video, the DVR or OnDemand is now a thing of the past. Technology has changed the mindset of the consumer as they can order almost any physical product from their computer or mobile device and have it delivered directly to them. This has caused the consumer to be inpatient and expect everything to be provided with instant gratification. This way of thinking has spilled over into entertainment as the option to stream your mobile device provides instant access anywhere you are. As AT & T roll out 5G, which will provide faster and more reliable network broadband and video consumption should continue to increase on mobile phones and tablets.

AT & T has transformed into a modern media company owning the actual service that is used to engage in content in addition to the current and future library of WarnerMedia. AT & T has over 170 million direct-to-consumer relationships across their wireless, pay-TV and broadband services in the US, wireless in Mexico, and DIRECTTV in Latin America. The direct-to-consumer relationship expands to 370 million when WarnerMedia's digital assets are incorporated, which include CNN.com, Bleacher Report, and their other media. AT & T is at the very beginning of this transformation, and they will most likely use large data to analyze all the data provided by these relationships to develop the most effective advertising mods to make ads for their services more relevant.

AT & T has multiple Catalysts to increase the price of dividends

AT & T Communications has returned to revenue growth in 2018, as mobility grew 2.1%, and service revenue grew 0.9%. GWS, which is America's largest test, is recognized as the best wireless network for national overall wireless performance. The Entertainment group ended the year with 24.5 million video subscribers, which is more than any other U.S. pay-TV provider while covering over 11 million customer locations through their fiber network. The Business Wireline division provided $ 10.6 billion in EBITDA while extending high-speed fiber to cover almost 2.2 million U.S. business customer locations.

In 2019, AT & T will look to add subscribers through their mobility unit and increase revenues. T plans to lead the market by aggressively rolling out 5G. By mid-2019, T plans to have 5G available in sections of 19 cities. The Entertainment Group will look to increase its fiber network to reach more than 3 million customer locations, increasing their fiber penetration.

WarnerMedia grew overall revenue by 5.5% as Turner increased by 3.9%, HBO increased by 3.9%, and Warner Bros increased by 6.3%. In addition to the growth, WarnerMedia continued to publish quality content as they delivered 37 Primetime Emmy Awards, with HBO earning more awards than any other network for the 17th consecutive year. Warner Bros. Movies grossed more than $ 5.5 billion in global box office receipts, while receiving 11 Academy Award nominations.

In 2019, WarnerMedia will launch a live streaming video product in Q4. They have previously started production on more than 70 Warner Bros. series for the 2018-1919 television season and the plan is to increase content development to further engagement across their IPs.

AT & T Latin America provides mobile services in Mexico to consumers and businesses while distributing pay-TVs across 11 countries in South America and the Caribbean. In 2018, Mexico Wireless added 3.2 million for a total of 18.3 million, which was a 21% year-over-year increase. Over the past ten quarters, T has added more subscribers in Mexico than any other provider. AT & T will have a success in 2019, as they look to increase their revenue from sustained subscriber growth. AT & T has also completed its LTE network investment and opened the first AT & T Foundry Innovation Center in Latin America, which will develop technology solutions for emerging markets.

Their EBITA is expected to continue its improvements and become positive in the second half of the year. Latin America is a huge opportunity for AT & T, as Mexico alone has a growing population of almost 132 million people. The median age in Mexico is 27.9 years old, which makes Mexico a target-rich environment as the lifespan for customers has long life.

AT & T's financials are overshadowed by their debt as 2018 illustrated many positive qualities

If I started off A conversation asking you to invest in an organization with just over $ 176 billion in debt, you would probably think I was a nut. What about if I followed up with the fact that the same company has over $ 531 billion in total assets and $ 131 billion of their total assets were in property, plant and equipment? While the $ 176 billion is a large pile of debt, the equity holders are equal to $ 184 billion, which is 80.5% of the market cap. In 2018, AT & T acquired Time Warner, and when the year ended, the cash outflows and free cash flow both significantly increased from 2017.

The combination of internal efficiencies and the acquisition of Time Warner may have provided AT & T with vitamin boost it was looking for From the close of 2017 to 2018, T's cash from operations increased by 14.74% while their free cash flow jumped by 35.76%. T once again increased their dividend distribution to shareholders, increasing their payouts by 11.67%, while their cash after dividends increased by 100%. If T can turn this into a trend and not just a one-year pop, their best days could be ahead of them, as they are committed to reducing their debt and de-levering their financials. At the close of the Time Warner merger, the debt load was $ 180 billion. In 2019, T plans to allocate $ 12 billion from free cash flow after dividends and an additional $ 6-8 billion from cash generated from asset monetization initiatives to reduce debt. By the close of 2019, AT & T is projecting to reduce their debt level to $ 150 billion, as they will have retired $ 30 billion in debt in less than two years. [Source: Stew Fiorillo] (Source: AT & T 2018 Annual Report)

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(Source: AT & T Investor Update)

AT & T's 34 years of dividend growth , which provides a long history of consistent increases. Today, the yield on shares of T is 6.51%, since they have a yearly payout of $ 2.04. Now, if the payout ratio was high, I would be somewhat concerned that they would not be able to continue this trend, but as we saw from free cash flow and dividend payouts, there is a large gap between the two. Currently, T has a payout ratio of 57.38%, which leaves a lot of room for T to continue dividend increases. AT & T goes ex-dividend on 4/9/2019, and the next payout is on 5/1/2019. If you are an income investor or a dividend seeker, T provides a juicy dividend that is covered by free cash flow and has a 34-year track record of growth.

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(Source: Seeking Alpha)

Conclusion

I believe that AT & T is a strong buy at its current share price. At the end of the fiscal year 2015, T ended the year with $ 402 billion in total assets and a shareholder equity of $ 122 billion. Their dividend was paying $ 1.88 per share, and T closed the year out at $ 34.41 per share with a yield of 5.46%. Today, shares of AT & T trade for $ 31.36, pay a dividend of $ 2.04 per share, which is a yield of 6.51%, and their total assets are over $ 581 billion with equity equity of $ 184 billion. T has grown its company, has increased the shareholder equity, and paid a larger dividend, while the share price has decreased. T has many growth prospects, including incorporating their strong entertainment assets into its strategic plan and capitalizing on growth outside the U.S. in Mexico and Latin America. I believe the next couple of years will be good for T as they should see increasing revenue and continuing cash from operations. If AT & T can capitalize on their plan for 2019 with a decreasing debt while increasing revenue, there is no reason to go back to the high 30s or break the $ 40 range.

Disclosure: I am / we are long T. I wrote this article myself and expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relations with any company whose stocks are mentioned in this article.


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