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Is AT&T Stock the Perfect Buy Amid the Chaos?

Bret Kenwell

During the last two hours of Wednesday’s trading session, investors saw what stocks look like in distress. Major indices tumbled and many individual stocks were obliterated, but AT&T (NYSE:T) held its own for most of the session. Sure, AT&T stock fell 1.95%, but that’s less than half of the decline in the Nasdaq Composite and it outperformed both the S&P 500 and Dow Jones Industrial Average. Shares are still up 1% over the last month.

Does this relative strength make T stock a screaming buy?

I don’t know if I’d call it a “screaming” buy, but AT&T stock is one that investors should certainly have on their list.

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Anyone who follows me on Twitter will have seen me point to the outperformers over the last few days. It has been ugly on Wall Street, even though we’re still not too far from the all-time highs. In any regard, the names that have been doing the best have been in high-yield names.

AT&T stock is in that group for its 6.1% dividend yield. AT&T peer Verizon (NYSE:VZ) has also been doing well thanks in part to its 4.5% dividend yield. Others include real estate investment trusts, like Digital Realty (NYSE:DLR), Ventas (NYSE:VTR) and Realty Income (NYSE:O).

Why You Should Buy AT&T Stock Right Now

Although buying right now seems a bit late, there are a few reasons to consider owning AT&T stock at these levels. Let’s dig at the dividend for a second, because that’s an important consideration in an environment like this.

For starters, when the market goes into meltdown mode, high-beta names like Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), Square (NYSE:SQ) and others really catch a beating. But names like T stock don’t, partly because investors are seeking quality stocks with low volatility. They call this a “flight to safety” and a big component to AT&T’s safety is its dividend.

Even though bond yields are cruising higher — causing much of this painful pullback — the 10-year yield is just barely more than half of AT&T’s dividend.

Here’s the thing though — it’s more than just about the payout. Ford (NYSE:F) yields almost 7%, but the quality is totally different. You see, AT&T stock has not only paid out a dividend for 34 consecutive years, it has raised it for that many years as well. Further, consider T stock’s “maximum yield.”

Back in late-July, we laid out a case for why investors should buy AT&T. Over the last 30 years, AT&T stock has only yielded 6.9% twice — and both of those moments were short lived. The only way to lower a dividend yield is to cut/abandon the dividend payout or to see the stock rally. AT&T didn’t cut its payout, so that only leaves the latter.

While we’re off the summer lows, AT&T is still at the higher end of its yield range paying out 6.1%. Additionally, AT&T stock trades at 9.3 times this year’s earnings and cash flows are increasing thanks to its acquisition of Time Warner.

Trading T Stock

chart of AT&T stock

Is AT&T stock perfect? Of course not. Earnings growth is forecast to decelerate to just 3.1% next year, despite a 7.1% increase in sales. That points to a contraction in margins, while the balance sheet is heavy with debt. But the cash flows are growing and that’s AT&T’s main attraction.

Regarding the charts, clearly the $34 level is resistance. Shares briefly topped that level on Wednesday before turning lower and falling to the 200-day moving average. For now, the 200-day is support, which has been the case since T got above it in September.

Below that though and investors will have to cope with the potential of a lower stock price. According to the charts, there should be reasonable support between $32 and $32.50. If AT&T stock falls through all of these marks — including level support (dashed line), the 50-day moving average and uptrend support (purple line) — then T is in trouble.

Above that though and it may very well remain a safe haven for investors. The caveat here is if the overall markets continue to puke as investors panic. On a panic, no stock is safe, AT&T included. But at least we can count on that payout.

Bret Kenwell is the manager and author of Future Blue Chips. You can reach him on Twitter @BretKenwell. As of this writing, he was long T, O, VTR and DLR. 

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