Will AT&T Inc. (T) Help You Retire Rich?

Since we looked at AT&T last year, the company hasn’t been able to earn back the 2 points it lost from 2011 to 2012. Yet the stock has done well, gaining almost 20% over the past year and continuing to support its high dividend yield.

AT&T has made major shifts in its changing emphasis from landlines to its wireless network over the past decade, but its core business model remains the same. By getting recurring revenue from largely captive customers, AT&T and rival Verizon Communications Inc. (NYSE:VZ) justify their colossal capital expenditures on building out their respective networks. As a result, AT&T has more than enough cash flow not just to finance its debt but also to give shareholders impressive amounts of dividend income.

Yet the rise of smartphones has put AT&T in a bit of an earnings bind, as subsidies to smartphone makers sap immediate earnings upon their initial purchase. Although AT&T makes back those subsidies over the course of two-year contracts, the relative lack of competing networks makes locking customers in less valuable than it would be in a more competitive data-plan environment.

AT&T has historically stayed within U.S. borders, but the company may be looking to expand into Europe. Looking for growth is a reasonable strategy, but Europe seems like a tough place to do business. Competitive pressures from France Telecom SA (ADR) (NYSE:FTE) and Vodafone Group Plc (ADR) (NASDAQ:VOD) would make entering the market extremely challenging, and the fact that Europe is in recession by some measures has led some analysts to question the move.

For retirees and other conservative investors, AT&T is a safe dividend-rich pick. Focusing too much on P/E-based valuation will lead you to incorrect conclusions because of the accounting of its big network investments. With a combination of income and growth potential, AT&T deserves a close look from anyone looking to add telecom exposure to a retirement portfolio.

The article Will AT&T Help You Retire Rich? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends France Telecom and Vodafone and owns shares of France Telecom.

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