Bottom catchers in shares of telecom and media behemoth AT&T (NYSE: T) have been walloped over the years. Weighed down by prior acquisitions, the behemoth was too big for its own good, and investors felt the diseconomies of scale going on at the long-time firm.
With the spin-off of Warner Media just months away, the company is poised to serve investors with a dividend reduction in accordance with the reduction of cash flows. Indeed, the company should never have made its acquisitions when it did, and investors have had to pay the price in the form of a plunging stock and a dividend cut.
With a modest dividend reduction already baked into the stock, though, AT&T actually looks like an intriguing turnaround option for patient income investors.
The AT&T dividend yield can be expected to yield anywhere from 4%-6%. The more sustainable payout is not only still quite sizeable, but it’s also positioned to grow at a quicker rate once the company feels more of the benefits from the ongoing 5G rollout.
Although it’s hard to put faith in a company that’s been such a laggard for so long, I do think it’s tough to pass on T stock’s value proposition, as the company looks to right its past wrongs. At around $25 and change per share, I am bullish on T stock.
Ambitious 5G Push
AT&T made some mistakes in the past, but the Warner Media spin-off could represent a turning point, as it looks to simplify its business and move on from its days as a diversified giant in the media industry.
5G wireless technology has been around for some years now, but thus far, the technology hasn’t really lived up to its full potential. At least, not across many locations where coverage is still questionable.
A major reason why is 5G hasn’t yet lived up to its potential is because the American telecoms still have a way to go to get its wireless infrastructure where it needs to be. Not only does 5G need to be up to speed, but its nationwide availability has much room for improvement.
As the next generation of 5G-connected devices continues rolling out, 5G will inch closer towards prime time, but the U.S. telecoms are going to need to pick up their game. Arguably, the 5G rollout is still in its early-to-middle innings.
After ridding itself of the capital-intensive Warner Media business, AT&T will have some extra cash flow to put to work, and it’s going to beef up its 5G and fiber broadband spending.
Once the Warner/Discovery transaction is closed, AT&T has plans to increase its annual capital expenditures to a whopping $24 billion. Undoubtedly, such massive investment will help push the next generation of telecom tech to the mainstream.
Wall Street’s Take
According to TipRanks, T stock comes in as a Moderate Buy. Out of 18 analyst ratings, there are five Buy recommendations, four Hold recommendations and one Sell recommendation.
The average AT&T price target is $29.22. Analyst price targets range from a low of $26 per share to a high of $36 per share.
Bottom Line on AT&T
Investor focus should be on the road ahead, not the path in the rear-view mirror. Looking forward, there’s a lot to love about the new, simplified and more-focused telecom company that is AT&T.
As AT&T ramps up spending to offer 5G to the masses, AT&T could rise from telecom underdog to top dog.
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Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
