In the old days of Ma Bell, AT&T
Today is a different communications world, and AT&T is a different communications company. But it's still a pretty safe investment -- and a rewarding one: Its dividend gives a 5.6% yield. Paying dividends has been part of the AT&T culture since the company's inception in the 1880s. AT&T has continued paying a dividend since the 1984 breakup, and has had six consecutive years of dividend growth -- the last five years at an average 5.67%. The current payout ratio is a realistic 48%.
The AT&T of today is also on the verge of becoming the largest American wireless carrier -- if its proposed acquisition of T-Mobile makes it past the government's antitrust and Federal Communications Commission oversight. If that does happen, AT&T will add 34 million more subscribers. Barring any divestitures in the merger process, that could leave the company with upward of 132 million wireless subscribers. That puts it considerably ahead of its biggest rival Verizon's
AT&T is also in a better position now than was feared when Verizon got Apple's
Be careful what you wish for
There are two threats to AT&T's strong position -- one obvious, the other not so much. The first threat is the government halting the acquisition of T-Mobile. The other threat is the government allowing the deal to happen.
Look at it this way: If the deal goes through, what's to stop Verizon from making a bid to acquire Sprint Nextel and its millions of subscribers? How could the government then say no to that deal? That scenario could potentially catapult Verizon back in the lead by about 23 million subscribers.
But AT&T is in good financial shape, with a profit margin close to 17%, and it will still be a close contender to Verizon even if the T-Mobile deal does fall through. To recap: AT&T is a strong company with a smart-if not yet locked-in-acquisition deal on the horizon, and it distributes a generous dividend to boot. What's not to like?
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Fool contributor Dan Radovsky owns shares of AT&T. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and AT&T. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.