by Genia Turanova, editor Leeb Income Performance Letter
the Fortune 500 company and the Dow Jones Industrial Average member, is
among the highest-yielding stocks in the entire S&P 500 universe.
it isn't just an income play – the company also satisfies both of the
objectives of our Growth & Income portfolio. In addition, the firm
is well-poised to increase its earnings.
AT&T has been reshaping its business' looks and operations ever
since its 1984 breakup. In the last few years alone, the company sold
some slower-growing businesses, such as the Yellow Pages, and invested
in faster-growing ones.
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High fixed costs in the telecom business
axiomatically mean that more subscribers lower costs for each new
subscriber. More subscribers in turn, therefore, raise profitability and
improve future dividend prospects.
the traditional wireline business continues to decline, the real avenue
for growth of today and tomorrow is via the wireless business – in
particular, through promotion of smartphones and data usage (AT&T
has more than 44.5 million smart- phone subscribers).
and price increases, combined, simultaneously increase revenues, margins
and absolute profits. In the third quarter of 2012 alone, while
consolidated revenues rose only 2.6 percent, AT&T wireless revenues
increased 6.6 percent – and data revenues, 18.3 percent.
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the largest 4G network in the U.S., going forward AT&T stands likely
to further expand its advantage. And these days, 81 percent of total
AT&T's revenue comes from its "growth" businesses – including
wireless, wireline data and managed IT services.
A record level
of free cash flow is another good sign, as is the company's
significantly reduced debt. This past summer, AT&T's board
authorized a $11.1 billion stock repurchase – thereby doubling its
previous share buyback program, in effect since late 2010.
this plan in place, the company can buy back about 300 million shares,
or 5 percent of its float, significantly reducing the share count –
while increasing EPS.
Overall, the company maintains a large payout, while extra growth creates great potential to further boost future dividends.