Why AT&T Didn't Impress the Market Today

Subscriber growth is up, but the market doesn't like what discounting is doing to margins for AT&T.

Jun 4, 2014 at 3:30PM

The Dow Jones Industrial Average (DJINDICES:^DJI) swayed between slight losses and slight gains today after economic data showed neither bullish or bearish leanings. A report from ADP found that the U.S. economy added 179,000 private-sector jobs in May, the fewest since January but nothing surprising given the tepid economic recovery. The Federal Reserve's Beige Book also said that most regions of the country are growing at a "moderate" and "modest" pace, which is not likely to change monetary policy in the near future.  

Without much of a catalyst to drive stocks, the Dow Jones Industrial Average was up just 0.07% late in the day, held back in part by AT&T's (NYSE:T) 0.7% drop

AT&T can't seem to impress investors
It seems like nothing AT&T does pleases investors. The market shrugged at word of the telecom's plants to acquire satellite TV company DIRECTV, and shares actually fell once the deal was officially announced.


AT&T stores have been busy signing up new customers.

Today's move was particularly interesting because AT&T said on Tuesday it expects to add 800,000 subscribers in the second quarter, which would be the biggest gain since the fourth quarter of 2009. But discounts intended to make AT&T more competitive with smaller rivals T-Mobile and Sprint won't result in the increased profit investors had hoped.  

Management said in an earnings guidance update it now expects 2014 revenue to rise about 5%, higher than previously expected, but margins are expected to be flat and earnings-per-share guidance stayed the same at the low end of the middle single-digit range.

When going after growth, companies will often give up profits to attract customers, and on a per-customer basis that's what AT&T appears to be doing. But keep in mind that the company still expects to generate about $11 billion in free cash flow this year, so this is far from a business that's in trouble.

Stepping back further, we see that the stock is trading at just 12.6 times this year's expected earnings, and investors are rewarded with a 5.2% dividend yield as well. The market might not be cheering the DIRECTV deal or AT&T discounting to gain customers, but long-term investors who buy on this dip get a company that has consistent cash flow and is a top-two player in a market in which high capital expenditures are required just to compete. That provides a strong competitive moat for a long-lasting business.

Don't worry about the noise surrounding one quarter or even the DIRECTV deal. If you're looking for a solid dividend stock, this should be on the top of your list.

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Travis Hoium manages an account that owns shares of AT&T.; The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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