AT&T Inc. Beats On Earnings To Remain Solid Dividend Play

  • Analysts were expecting diluted earnings of 69 cents/share. AT&T delivered 72 cents.
  • The dividend of 48 cents is fully paid-for by earnings, and the yield is now over 5%.
  • AT&T has used open source to catch up with rivals' Internet technology.

With oil stocks having failed to live up to their billing as dividend plays, a lot of investors are turning to telecommunications stocks, especially AT&T (NYSE:T). It is a good call.

In its first-quarter report, the company announced earnings of 72 cents per share, fully diluted, beating estimates of 69 cents, and matched expectations on revenues of $40.5 billion. That means it can easily pay its 48 cent/share dividend, with its fat 5% yield.

That dividend, and the market’s desire for sure things, has sent AT&T stock up 11% so far this year, and the latest earnings will eventually send it higher. You can still get that fat yield, though. The stock actually fell in after-hours trading to $37.50/share on April 26, sending that yield to 5.04%.

DirecTv, the satellite broadcaster, is now showing up in earnings, and revenue for the quarter was 24% ahead of last year as a result. The best number of all was the churn number, just 1.42%, meaning the company is not losing many customers it has to replace.

Loss of customers has always been the big fear at AT&T. Landlines are rapidly disappearing, and the DSL Internet run off phone line does not deliver speeds customers can get from cable. The cellular business, meanwhile, faces growing competition from Sprint (NYSE:S) and T-Mobile US (NSDQ:TMUS).

But AT&T, which was born out of the SBC regional Bell company after the 1984 Bell break-up, now has the national footprint of old. With DirecTv, it can sell TV and Internet services anywhere in the U.S., its wireline units are being upgraded to fiber under the name GigaPower, and its mobile service covers most of the population as well.

Dividend lovers like to compare Verizon (NYSE:VZ) to AT&T, as they are both doing the same things – wired infrastructure, Internet core work, and wireless. But the comparison now favors AT&T, which sports a higher yield by 0.7%, and which now has a complete nationwide footprint through DirecTv and is avoiding less-profitable consumer services like Internet content.

CEO Randall Stephenson, 56, is not a big talker, but a recent New York Times story about his brother, Kevin, who was told to gear up his skills for the cloud or prepare to leave, was both brilliant public relations and a good reflection of where the company is going. The company is now basing its entire network, including switching, on the open source OpenStack cloud model, meaning the obsolescence threatened by the rise of the Internet is no longer as frightening. The OpenStack Summit event this week is in AT&T's home state of Texas.

As dividend investors recognize AT&T’s strengths, the stock is going to continue to rise. You won’t get rich, but if safety is your thing then this may be the best play on today’s investment board. Certainly, it’s the best dividend play in the company’s headquarters of Dallas.

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