Source: PaxForex Premium Analytics Portal, Fundamental Insight
AT&T stands out as a strong dividend stock due to its substantial yield of 5.9%, significantly higher than the S&P 500 average of 1.4%. This makes it an attractive option for income investors seeking long-term investments.
Additionally, AT&T presents potential for significant growth. Despite shares rising over 30% in the past year, the stock remains undervalued. Several factors could contribute to further gains in the near future:
- Potential Decline in Interest Rates
Analysts predict that the Federal Reserve may begin reducing interest rates later this year, possibly as soon as September. This could boost high-yielding stocks like AT&T, as lower interest rates decrease returns from bonds and other investments, making dividend stocks more appealing. An initial rate cut could signal the possibility of additional cuts, especially considering the Fed's cautious approach to monetary policy.
- Strong Quarterly Performance and Potential Dividend Increase
If AT&T continues to deliver solid quarterly results, a dividend hike could be on the horizon. Concerns about the dividend appear to be diminishing as the company's stock has grown amid positive earnings reports. In the most recent quarter ending in June, AT&T reported revenue of $29.8 billion, slightly down from $29.9 billion the previous year. Adjusted operating income was $6.3 billion, a marginal decrease from $6.4 billion in the prior-year period. Although revenue and profits have not seen significant increases, AT&T's financial stability reassures investors about the security of the dividend.
With a modest payout ratio of around 64%, there is potential for a dividend increase later this year if the company's performance remains consistent. This would signal confidence in AT&T's business, likely driving the share price higher.
- Potential Phone Upgrade Cycle
The release of new phones with artificial intelligence (AI) capabilities this year may prompt consumers to upgrade their devices, which they have held onto for an extended period. This wave of new phones and service plans could significantly boost AT&T's business, leading to much stronger growth.
The timeline for this upgrade cycle is uncertain; many of Apple's new AI features won't be available until 2025. While some consumers may wait to see the impact of these features, others might be tempted to upgrade sooner. Alphabet has already launched its AI-enabled phones, and with increasing excitement around AI, a surge in phone upgrades could occur in the coming months, benefiting AT&T.
Despite the rise in AT&T's share price over the past year, the stock remains undervalued, trading at less than nine times its projected future earnings according to analysts. For income investors, this makes AT&T a compelling buy due to its attractive and seemingly secure dividend, with significant potential for further stock price appreciation.
Waiting too long to invest carries the risk of a decreasing yield as the stock price climbs. Therefore, there is a strong incentive to buy now to secure the high dividend payout.
As long as the price is above 18.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 19.23
- Take Profit 1: 20.00
- Take Profit 2: 21.00
Alternative scenario:
If the level of 18.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 18.00
- Take Profit 1: 17.00
- Take Profit 2: 16.00
