Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investing in dividend stocks presents various advantages for investors. These stocks can offer a source of income, enhance returns through dividend reinvestment plans, serve as a hedge against inflation and economic downturns, and, notably, exhibit the potential to outperform broader markets with relatively low risk and volatility. However, it's crucial to recognize that not all dividend stocks make excellent investments. Companies undergoing strategic shifts may find themselves trailing the market for extended periods.
A pertinent case is the telecom giant AT&T. Despite boasting an impressive annualized yield of 6.98%, the company's shares have significantly underperformed when compared to industry peers like T-Mobile and the S&P 500 index over the past decade.
While AT&T's strategic missteps have been extensively discussed elsewhere, the focus of this article is not on those specific blunders. Instead, the objective is to evaluate whether AT&T stock merits consideration as either a vehicle for capital appreciation or as a means of generating income. To achieve this goal, let's delve into AT&T's core value proposition.
What is the sentiment among Wall Street analysts regarding the telecom giant? Over the past 30 days, 27 analysts have scrutinized the stock, resulting in 10 buy recommendations and two sell ratings. Despite this, the prevailing consensus among most analysts is to label the stock as a "hold" at present.
Considering the available analyst commentary, there appears to be a consensus that AT&T stock has hit a substantial bottom, particularly after experiencing a 13.6% decline this year. This assessment gains credibility as AT&T's shares currently trade at less than 7 times expected earnings, approaching a record low on this metric. In summary, Wall Street's collective opinion suggests that AT&T presents an appealing blend of value and income, categorizing it prominently in the "income-generation" category of stocks.
But are the analysts correct? When viewed as a vehicle for capital appreciation, AT&T falls short of expectations. Stocks on a prolonged losing streak typically need to surprise Wall Street with a robust earnings performance to alter their trajectory. However, AT&T seems unlikely to deliver such a game-changing financial report in the near future, with forecasted earnings growth of less than 3.2% in 2024.
Complicating matters, the company's high dividend yield might also curtail its growth potential, a topic beyond the scope of this article. Consequently, this underperforming telecom stock does not immediately stand out as a compelling choice for capital appreciation.
Taking everything into account, it appears that Wall Street's consensus may prove fairly accurate in the grand scheme of things. AT&T shares likely have stabilized, and the substantial dividend seems secure with the company's improving free cash flow. Therefore, we view AT&T stock favorably as a passive income play.
However, it's prudent not to go all-in on this high-yield stock. Due to the intensely competitive nature of the telecom industry, significant capital requirements, and a softening global outlook, AT&T probably should constitute only a small percentage of a well-diversified income-generating portfolio.
As long as the price is above 15.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 16.01
- Take Profit 1: 17.00
- Take Profit 2: 18.00
Alternative scenario:
If the level of 15.00 is broken-down , follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 15.00
- Take Profit 1: 14.00
- Take Profit 2: 13.00
