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AT&T Rewards Shareholders With Dividend Hike Despite Woes

Zacks Equity Research

AT&T Inc. T recently announced a dividend hike. The move reflects the company’s commitment to create value for its shareholders and underlines its confidence in generating cash. Following the announcement, shares of the company have inched up 1.32% to $38.24 at the close of business on Dec 15.

The company raised its quarterly dividend by 2% to 50 cents per share (annualized $2.00 per share). Sanctioned by the company’s board of directors, the dividend will be paid on Feb 1, 2017 to shareholders of record as of Jan 10. This marks the 34th annual dividend increase by the company.

Meanwhile, Randall Stephenson, Chairman and CEO of AT&T, claims that the dividend hike was backed by the company’s strong cash flows and business outlook. In third-quarter 2017, AT&T generated $11,114 million of cash from operations compared with $10,995 million from the prior-year quarter. Free cash flow in the reported quarter was $5,863 million compared with $5,182 million in the year-ago quarter. Management expects free cash flow to be enough to pay debt and return cash to shareholders.

Headwinds

AT&T has been grapplingin the competitive and saturated U.S. wireless market for long. Adoption of several unlimited data plans resulted in a reduction of wireless service revenues and average revenue per user (ARPU). The domestic wireless industry is likely to become more competitive in 2018 with the entry of cable MSOs (multi-service operators) like Comcast Corp CMCSA and Charter Communications Inc CHTR. Regulatory issues continue to bother, evident from the pending AT&T -Time Warner Inc TWX deal deadline being extended for the third time to Apr 22, 2018. Competitive threat from online video streaming service providers is another major concern for its over-the-top (OTT) service — DIRECTV NOW. 

The company’s currently carries a Zacks Rank #4 (Sell).

Moreover, AT&T portrays a disappointing price performance. In the past six months, shares of AT&T have lost 1.7% against the industry’s rally of 0.7%.

 

 

Comcast, Charter and AT&T currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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