Friday, October 23, 2009

The Case For T

I'm bullish on AT&T. It's one of the few mega caps that offers both a handsome dividend payment - currently over 6% at today's closing price - and the prospect of impressive equity value appreciation. Forget the relatively flat growth currently being experienced by this industrial giant. It's shedding wired customers at an astounding rate as households unplug their wired phone services in favor of cell phones as their primary voice communication device.

In the September quarter the company activated 3.2 million iPhones while adding 6.7 new wireless customers in the past year. Wireless services accounted for 44% of the September quarter's revenue. AT&T is quickly transitioning itself from dependence on wired revenue sources while it invests heavily in its wireless infrastructure for both voice and data services.

Depressing near-term earnings are the big subsidies being paid to Apple on subsidized iPhone purchases. But that investment has already provided some attractive results - the churn rate on post-paid cellular service accounts dropped to 1.17% in the September quarter.

While this isn't a stock that would excite anyone to watch its daily trading gyrations, for the long-term this company is positioning itself to deliver consistent results and continues to pay an attractive dividend. There's a total return value in AT&T that shouldn't be overlooked.

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