It’s no secret that the U.S. telecom industry is a choppy one. Changes in the way consumers use their mobile networks, landlines and internet connections have made it a difficult time for companies like AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) to operate. Fierce competition for new subscribers, new legislation affecting service providers and shakeups from newbies like Netflix, Inc. (NASDAQ:NFLX) have all weighed considerably on the sector. However, if you’re willing to wade into the troubled waters in the telecom space, T stock is the way to go.
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Not only does AT&T stock provide investors with steady growth and passive income, but the company has been working to ensure that it remains at the top of the pack in the future as the industry evolves.
Three Reasons T Stock Is Still a Rock Star
AT&T may be operating in a challenging industry, but the firm certainly knows how to reach beyond the telecom space to continue growing in unexpected ways. T stock isn’t going to have to go at it alone in the years ahead as technology changes rapidly. Instead, the firm has been able to create relationships with companies across other industries that are likely to grow as technology evolves.
Perhaps the most promising relationship that T stock boasts is the one it has with American automaker Ford Motor Company (NYSE:F).
Most agree that connected cars are the future, so ensuring that its own service is well integrated in the connected car ecosystem is essential for AT&T stock. Not only is AT&T making major strides in the driverless car space through its partnership with Ford, but the company is also planning to connect some 10 million Ford vehicles to the internet by 2020.
Another big reason to choose AT&T over its peers in the telecom space is that AT&T has aligned itself with Amazon.com, Inc. (NASDAQ:AMZN) in an effort to expand its cloud computing network. AT&T has a NetBond cloud networking system that can be linked to Amazon Web Services (AWS), the largest cloud computing network on the planet. The partnership also connects devices and appliances to the internet via the AT&T network and allows the two companies to join forces against cyberattacks by integrating their cybersecurity platforms.
While it’s all well and good to talk about the potential growth opportunities that T stock has built for itself in the future, it’s also important to take a hard look at the telecom industry right now and where AT&T stands among its peers.
Its plans to acquire Time Warner Inc (NYSE:TWX) are a big part of this analysis because if the deal is approved, T will see its content costs and value proposition to customers skyrocket. As there have been some questions as to whether the Federal Trade Commission will approve the deal, I’d argue that the benefits of adding TWX to the AT&T umbrella haven’t been priced into the firm’s $37 share price.
Not only do AT&T shareholders have the TWX acquisition to look forward to, but they can rest easy knowing that T stock offers a reliable and very substantial dividend to cushion their income. AT&T stock provides shareholders with a 5.4% dividend yield and it has been regularly raising its dividend payments for the past 30 years.
Some have been worried about the security of AT&T stock’s dividend because the firm has a relatively high payout ratio and the TWX acquisition will strip the company of some of its free cash, but it’s important to remember that the TWX takeover will also increase AT&T’s profitability and give the company more leeway for dividend hikes.
Bottom Line on AT&T Stock
T stock is a solid pick in a very unstable industry.
The telecom space is a risky one, especially when you consider all the changes that are expected to come in the future. However, AT&T stock doesn’t look like it’s going anywhere as the company has established itself as an industry leader and done quite a bit of preparation for the future. If you’re going to take a risk on a telecom stock, there really is no safer bet than T stock.
As of this writing, Laura Hoy was long AMZN.
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