The telecommunications industry has time and again proven to be a key player helping revive the global economy. Telecom is a necessary utility and with the reviving economy the FCC has estimated that within the next five years, mobile-data demand will grow 25-50-fold from its current level. New service areas such as IPTV, collaboration and cloud computing, videoconferencing and mobile payments offer a wide range of opportunities for the telecom giants. Another strong point in favor of the telecom giants is the low-cost operators cannot compete with the giants because of scarcity of available spectrum. Investing in the industry leaders will surely help you in generating a stable income.
AT&T Inc. (NYSE:T)
The telecom giant has been around seemingly forever and been generating returns that whole time. The stock has seen a growth curve since 2009 with a total increase of 56.28% since its low during the recession. Toss in an astonishing dividend yield of 5.10% and it beats alomst anything. With a market cap of $200 billion it is the second largest telecom provider in the U.S. The company recently reported a solid Q4 led by its wireline and wireless business (thanks to its blockbuster product U-Verse!). AT&T also sold a record breaking 10.2 million smartphones (the highest ever sold by any U.S. carrier); taking the total customer base to 47.1 million (16% of them were new).
AT&T’s acquired Verizon Communications Inc. (NYSE:VZ)’s B Block Spectrum Holding, which is complementary to AT&T’s existing 700 MHz B and C block holdings, enables AT&T to deploy a 10×10 MHz LTE-B and C combined network in 18 states. Additionally, it will add 42 million POP’s + AWS licenses in 5 markets. AT&T’s equity interest in America Movil SAB de CV (ADR) (NYSE:AMX) is also boosting the company to solidify its presence in the latin market. AT&T Mobility is looking forward to expand its 4G-LTE coverage to 300 million consumers by the end of 2014, and will give a tough fight to Verizon’s 4G-LTE coverage area.
Recently AT&T announced the purchase of Atlantic Tele-Network’s U.S. retail wireless business (585K subscribers) and its spectrum for $780 million. Seeing the declining growth in the wireless segment, I regard this deal as a positive move for the wireless assets running on cellular spectrum.
The company also repurchased 371 million shares, or about 6% of those outstanding, for $12.8 billion. Its Project Velocity IP LTE is also looking forward to cover more of the U.S. population by this year end. In terms of LTE, AT&T covers 150 million Americans, which is quite impressive. It pays an attractive 5.3% dividend yield, has a forward P/E of 13.2 and a net profit margin of 5.9%. Given AT&T’s healthy fundamentals, fair valuation level, and solid downside protection by the sustainable dividend yield, the stock deserves a buy rating.