The clock is finally ticking in favor of AT&T (T 0.21%). Shares of the telco giant are trading higher in 2019, and starting to eat into last year's rough 22% decline.
You have to take the good with the bad when you size up AT&T. Its wireless business continues to be a steady grower, and there are signs that its recent acquisition of Time Warner will be an early contributor to the telecommunications bellwether's growth. However, you also have the gradual slide with its legacy business and a problematic pace of defections at DirecTV. It all adds up to flattish growth now, but things are unlikely to balance out perfectly in the future. Let's head out to 2024 to see how AT&T will fare as a company and -- more importantly -- as an investment.
Image source: AT&T.
Party like it's 2024
Let's start with AT&T's dividend, since it's a big draw for income investors. When AT&T boosted its payout rate late last year, it stretched its streak of annual hikes to 35. The chances are strong that AT&T will be celebrating 40 years of dividend increases by the end of 2023.
AT&T's quarterly disbursements translate into a current yield of 6.7%. That may sound juicy, but it's a payout ratio of just 58%. Analysts see profits growing slightly in the coming years, more than enough room to keep tossing another penny per share into its quarterly dividend checks with every passing year. If you're confident that the distributions will keep inching higher, it makes things easier in deciding to buy the stock. You will either have capital appreciation and a lower yield or a lower-priced stock with a heck of a dividend.
With income investors addressed, let's move on to the business itself. While AT&T's legacy wireline services has likely peaked, there's a long tail to the decline. The same came be said about DirecTV, as cable television may never grow again, but the fade should continue at a gradual clip. AT&T's wireless business should still be growing, and by 2024, it's inevitable that the third and fourth largest mobile carriers will have merged to provide even more pricing power to the remaining players.
Check out the latest earnings call transcript for AT&T.
Sizing up WarnerMedia is trickier. It's easy to get excited about HBO with Game of Thrones coming back next month, but this is the final season of the show. HBO is more expensive as a streaming service than its rivals with larger content libraries. If Warner can take a page out of the Marvel playbook and breathe new life into its DC Comics franchises -- and it's starting to make baby steps in that direction -- this content grab on AT&T's part will be paying off nicely in five years. However, as it stands, this is probably the segment with the least visibility as to where it will be in five years.
Growth isn't going to be spectacular for AT&T, and with so many cash cow businesses, it wouldn't be a surprise if it gobbles up another needle-moving company or two in the next five years. The stock won't be scorching hot, but there are things more worthwhile than slow growth, like a fat dividend to reward patient investors. AT&T will be fine in five years, even if it all it does is keep pace with the general market.
