How AT&T Inc. Stock Wins If the FCC Kills Net Neutrality

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

The last time I was asked to write about AT&T Inc. (NYSE: T ), my own arguments convinced me to buy it. I saw its purchase of Time Warner Inc (NYSE: TWX ) assuring its dividend for years to come. That's why you buy T stock, I wrote. You buy it for the dividend, $1.96 per share coming to a yield of 5.31% at its Dec. 12 opening price of $36.90 per share.

Source: Mike Mozart via Flickr

But while the Justice Department has moved to block that merger, it has no real legal grounds to do so. The merger will go through. The trial has been set to start on March 19 . Bigger news is coming from the FCC which is moving to end "net neutrality" as early as this week and give AT&T enormous power over its customers' internet access.

T Stock in the 21st Century

Analysts are already getting a taste of what this will mean from AT&T's wireless operations, which have been operating without net neutrality rules for years. There, the name of the game is "zero rating," not counting certain services against data caps, where the carrier has a business interest.

An example is DirecTV Now , which AT&T has used to revive its struggling DirecTv satellite unit. DirecTV Now allows DirecTV customers to stream shows over AT&T's wireless network at no additional data cost. Since the service debuted a year ago it has gained 1 million customers at $35 per month.

The new service has "saved the bundle" for DirecTv, and allowed it to maintain relevance despite competition from Comcast Corporation (NASDAQ: CMCSA ), which is only now starting to grow its Xfinity mobile service.

AT&T, which has been in mobile since 1994, when it bought McCaw Cellular, has enormous amounts of mobile spectrum around the country and about one-third of the U.S. mobile market . Cash from mobile and satellite customers has helped AT&T expand its wired network, which makes it more competitive.

While cloud service providers spend $4 billion per year and more on new capital, AT&T's $18 billion in free cash flow lets it spend over $20 billion each year expanding its mobile service and fiber footprint.

The FCC's ending of net neutrality will let AT&T take full advantage of this investment, tying its wired and wireline customers together in a high-cost bundle where TV service is just one small piece of the puzzle. Winning Time Warner adds content to the mix, but AT&T can do fine without it.

Why Buy T Stock

You don't buy T stock for growth, although it is up 9.3% since my Nov. 15 piece came out. You buy AT&T for its dividend. So long as AT&T remains devoted to the dividend, and so long as AT&T has the earnings to maintain the dividend, you have a great income investment.

Where else can you reliably get 5.3% on your money in today's economy? Assuming AT&T hits its fourth quarter whisper number of 65 cents per share of earnings, on $41.37 billion in revenue, it will have delivered $2.33 per share of earnings and paid out $1.96 per share in dividends during 2017. The dividend, in short, is affordable.

This not only makes AT&T a good place to hang out from economic storms, since the yield will keep the shares from falling too far, but it also makes it a premier holding for those seeking income.

As the baby boom ages out of the workforce, and 4 million are hitting 65 every year for the next decade, a lot more portfolios are going to be looking for a stock like this.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.comor follow him on Twitter at @danablankenhorn . As of this writing he owned shares in T.

More from InvestorPlace

The post How AT&T Inc. Stock Wins If the FCC Kills Net Neutrality appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.