AT&T Is Going Nowhere, and That Might Be Fine – For Now

AT&T (T) is a no-growth company. It’s been that way for years. Yeah, AT&T has bumped revenue up by $5 billion in the past couple of years, but cost of sales rose by the same amount. In fact, gross profit in FY14 was below that of FY12. AT&T has SG&A expenses of $41 billion, which is slowly rising, and $18 billion in other expenses. Once everything filters to the bottom line, we find AT&T net income went from $7.26 billion in FY12 to $6.2 billion in FY14.

Because of the 5.4% dividend. That dividend may cost AT&T about $9.5 billion annually, but AT&T generates about $10 billion every year in free cash flow. That’s the entire AT&T story, or it was until last year, when it agreed to buy DIRECTV (DTV) for $95 per share. If interest rates rise, which they will at some point, and bonds truly compete with dividend stock yields, investors will be quicker to sell a no-growth play like AT&T stock than preferred stock yielding 8%-9%.

Source: InvestorPlace

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