Source: PaxForex Premium Analytics Portal, Fundamental Insight
If you’re an investor in search of steady, growing income, America’s telecommunications sector, dominated by a small number of major players, could be a worthwhile area to explore. At present, only three companies control nationwide 5G networks, creating an oligopoly that attracts new subscribers who are likely to stay long-term. This stability and high subscriber retention present compelling opportunities, particularly with AT&T, a leading player offering a substantial dividend yield and strategic focus on core service expansion.
AT&T stands out with a 5.1% dividend yield at recent stock prices, making it an attractive choice for dividend investors. Over the past year, AT&T's stock price has climbed approximately 44%, a substantial recovery that has investors wondering if this upward trend can continue. A deeper dive into AT&T’s recent performance reveals that while the company has faced some challenges, it may still be poised for long-term success.
AT&T’s recent share price rally is largely due to a low starting point, as the stock had taken a significant hit in 2022. The company’s decision to reduce its dividend followed the spinoff of WarnerMedia, its media asset division, in a move to focus more on telecommunications and shed the volatility associated with media markets. This pivot has allowed AT&T to shift its full attention to its primary strengths: mobile and broadband service expansion, especially as cord-cutting trends continue to shrink traditional media demand. With telecom services showing more stable demand, AT&T’s cash flows now appear more reliable.
While AT&T has not yet returned to increasing its quarterly dividend, there is a reasonable chance it could resume in 2025. For the year ending in September, AT&T reduced its net debt by 2.3%, bringing it down to $125.8 billion. This amount currently represents approximately 2.8 times its adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) over the last 12 months. AT&T's management aims to reduce this debt ratio further, targeting 2.5 by the first half of 2025. Meeting this goal could position AT&T to resume annual dividend hikes, a potential boon for long-term investors.
Total revenue for AT&T’s third quarter decreased slightly by 0.5% year over year, but the primary headwinds contributing to this downturn may be temporary. Equipment sales, for example, fell 5.7% year over year to $4.5 billion, a reflection of consumers’ current hesitancy to upgrade their smartphones. The smartphone market has seen slower replacement cycles, as consumers feel less pressure to upgrade with each iteration. However, this trend is not expected to last indefinitely; as devices age, consumers will inevitably need to replace them, and AT&T is positioned to capture this demand when it rebounds.
Beyond consumer equipment, AT&T faces declining demand from businesses for legacy voice and data services. In the third quarter, business wireline sales dropped by 11.8% year over year to $4.6 billion. Although demand for these older services is decreasing, the most significant losses in equipment and legacy voice revenues may be nearly behind AT&T, creating an environment where growth in mobile and broadband services can take on a more central role.
On the broadband front, AT&T’s results are promising. Third-quarter broadband revenue grew by 6.4% year over year, driven by strong performance from AT&T Fiber, which has added more than 200,000 customers for 19 consecutive quarters. Currently, around 28 million consumers live in areas served by AT&T Fiber, a figure that the company aims to increase to 30 million by the end of next year. This expansion supports not only broadband growth but also mobile service growth. AT&T has observed that its market share of postpaid mobile subscribers is about 5% higher in areas where AT&T Fiber is available, thanks to the appeal of bundled service options.
Mobile service revenue increased 4% year over year in the third quarter, and this trend is likely to continue as AT&T rolls out more fiber-optic cables. Consumers increasingly prefer bundling broadband and mobile services with a single provider, and AT&T’s dual-focus strategy on both mobile and broadband could strengthen its position in the telecommunications market.
Even after its stock surge, AT&T remains attractively priced, trading around 9.9 times forward earnings. This valuation suggests a reasonable entry point, especially for income-focused investors. With legacy segments approaching stability and annual growth in low single digits becoming more likely, adding this high-yield dividend stock to a diversified portfolio could prove to be a smart long-term move.
As long as the price is above 20.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 21.04
- Take Profit 1: 23.00
- Take Profit 2: 24.00
Alternative scenario:
If the level of 20.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 20.00
- Take Profit 1: 19.00
- Take Profit 2: 18.00
