Relied Upon for Its Dividend, Could AT&T Inc. Now Be a Growth Stock, Too?

Despite AT&T's long-held status as a slow-and-steady dividend payer, here's why it could have some surprising growth in store as well.

Jun 7, 2014 at 9:00AM

Telecom giant AT&T (NYSE:T) has a lot working in its favor. While a stodgy company with a roughly $182 billion market capitalization might not seem exciting to you, AT&T has more going for it than first meets the eye. The company is looking forward to strong growth this year, thanks to continued growth in its wireless segment and benefits from the planned acquisition of DirecTV (NASDAQ:DTV).

To reflect management's optimism, AT&T recently increased its revenue growth target for this year. If it hits its goal, AT&T will generate far greater revenue growth than last year.

Add it all up, and what was typically a slow-growth company might just be a growth story.

A slew of catalysts behind AT&T
First and foremost, investors should expect growth as a result of AT&T's huge acquisition of DirecTV. AT&T announced it will acquire the pay-TV provider in a massive transaction valued at $67.1 billion, including debt. The deal will result in immediate benefits for AT&T, including millions of subscribers. In fact, AT&T will instantly boost its presence in video by adding DirecTV's 38 million subscribers in the U.S. and Latin America. And, the takeover presents potential for significant cost synergies down the road, which will help boost profitability.

In the escalating fight for cable subscribers and the threat of "cord-cutting" among cost-conscious consumers, AT&T has an added advantage with DirecTV in tow. That's because DirecTV is the No. 1 satellite provider in the United States, with a valuable asset through its NFL Sunday Ticket package. DirecTV currently pays the National Football League $1 billion per year for the exclusive rights, which is a major advantage over other cable or satellite providers.

AT&T's financial position will be further strengthened by its recent bond offering. This was a great move, since the company was able to secure extremely low-cost debt, which it can use to help pay for the acquisition. Thanks to its solid financial condition and historically low interest rates, AT&T was able to sell $2 billion in debt at attractive rates. The offering included 30-year bonds which yielded only 1.4 percentage points more than similarly dated U.S. Treasury bonds, for a yield around 4.8%. That's actually lower than AT&T's current annualized dividend yield.

As a result of all these promising catalysts, AT&T increased its revenue growth forecast for this year. The company now expects to grow revenue by 5% this year, which would represent accelerating year-over-year growth. AT&T generated less than 2% revenue growth last year. If AT&T hits its goal, the company would more than double revenue growth from the previous year. This might allow AT&T to grant investors a more sizable dividend increase than the one-penny-per-share bump it's been giving the past few years.

The key takeaways
While AT&T has historically been labeled as a slow-growth, stodgy type of company, it has strong growth in store this year. It's on track to more than double its revenue growth from last year, thanks to its aggressive acquisition of DirecTV and its highly successful wireless business.

Buying DirecTV not only adds tens of millions of subscribers to AT&T, but it offers a highly valuable asset in the form of the NFL Sunday Ticket package. This gives AT&T a leg up against competitors, as well as a means to fight the "cord-cutting" phenomenon going on.

Plus, AT&T's savvy financial management will help blunt the financial cost of the huge acquisition. AT&T sold $2 billion of debt and took advantage of very low interest rates. The extremely long maturities will provide years of low-cost financing.

Most investors probably buy AT&T for its 5% dividend, which is certainly a valid selling point. But if it's able to meet its ambitious growth expectations, you might get an unexpected dose of capital gains in addition to the hefty distribution.

Speaking of dividends ...These are the top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends DirecTV. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers