How's it going today guys and welcome Back to stock radar in this episode We're going to be talking about a T Stock they trade under the symbol T this Is a very old company that is 141 years Old they're an income stock they're for People looking to get income from their Investments from those quarterly Dividend payments as a goal a lot of Times we look at stocks and we Categorize them as conservative growth Stocks or aggressive growth stocks and Some are a blend of both growth and Income and then we have stocks that are Just speculative in nature but a t is One that is not expected to have any Kind of crazy growth in the near future But they do have a very appealing and Very consistent dividend they pay out a Dividend of 5.4 percent they have a Price to earnings ratio of 23 so they Are a good value investment and they Currently have a market capitalization Of 228 billion dollars now on to that Dividend ATT has been paying dividends For 34 years and they have increased That dividend in every single one of Those years giving them a 34-year Dividend growth streak with that Impressive 5.4 percent dividend so Starting off here let's talk about the Pros of a T stock number one has to be The fact that this is the world's Largest telecommunication company the
Largest Telecom company in the world Equally impressive is looking at their Revenue for 2017. in 2017 a t did 160 Billion dollars of Revenue that is Absolutely amazing because that is Larger than the market capitalization of Many companies out there alone they're Making more money they have more Revenue Coming in than the size of most publicly Traded companies this is a massive Company and they have a very appealing Business model for investors because due To the nature of it being subscriptions Whether you're a wireless subscriber or Whether you are a DirecTV subscriber Because we're going to talk about that How ATT now owns DirecTV it is a Predictable business model and you have Income coming in every single year and That is why they are able to pay such an Attractive dividend to shareholders now On top of that at is the second largest Wireless Communications provider in the United States number one is Verizon and They are very close there are some years Where at T is on top and some years Where Verizon is on top but in 2017 Verizon was number one as far as Wireless communication providers go and At T was a very close second another Pro Per ATT stock is the fact that they are Going to be launching 5G mobile Communications at some point in 2018 They're looking to roll this out in
About one dozen areas and eventually Roll it out across the entire network Now that's going to be a very expensive And time consuming process but at T is Expected to be the first company to roll Out 5G cell phone Communications now Another Pro for at T is the fact that They have Diversified away from the Wireless telecommunications business for A while that was the majority of their Business but they Now operate in four Different segments which gives them Diversification across different markets So the divisions are Business Solutions And in 2017 that was 43 percent of total Sales entertainment which represented 31 Of 2017 sales consumer Mobility which Represented twenty percent of 2017 sales And then International which was just Four percent of 2017 sales so most of The business for at T is actually not With the consumers it is with these Businesses and governments they have as Customers for their business solutions Their telecommunications software and Services now another Pro for at T is the Fact that they acquired DirecTV back in 2015. now some people might stop me here And say wait a second I know people are Cutting the cord and we're going to get To that that is a major con for at T Right now is due to the fact that they Own DirecTV that is a major threat to This company is the fact that millions
Of people every single year are cutting The cord from their cable TV Subscription but overall I see this as a Pro for a t because this allows them to Offer bundled packages with their Wireless and Telecommunications Services Tying in the DirecTV packages which Allows them to have synergy between These two businesses they're able to Bundle packages where they can offer DirecTV as well as internet as well as Cell phone packages all in one and that Allows them to be more price competitive And it gives them a significant Advantage in the market another Pro for ATT is the fact that they are a cash Flow machine they have 156.6 million Wireless subscribers and Every single one of those is paying a t Every single month this gives them a Very predictable Revenue stream and as We said that is why a t is able to pay Such an attractive dividend because they Have a massive amount of cash flow from Operations we're going to go over more On this when we look at the fundamentals Of a T stock now as far as Direct TV Goes there actually is a pro with that And that is the fact that DirecTV has Launched DirecTV now which is a Subscription streaming service similar To Netflix and Hulu and they have about 1.2 million paid subscribers at this Point in time so they're well aware of
The fact that people are cutting the Cord and they don't want the traditional Cable pack packages but they do have Another product out there that is very Appealing and it is also competitive With the other streaming services out There so it's good that they're not just Being willfully blind to the fact that People are cutting the cord they have Another product out there or a service Out there that may be appealing to some Consumers and it seems like with 1.2 Million subscribers this might be a nice Little business for DirecTV which is Part of a t but we can't ignore the fact That a lot of people especially young People are cutting the cord and this Could chip away a lot of the business For DirecTV and then finally my last Pro Per ATT is the fact that this is a very Boring investment and for long-term Value and income investors boring is Good you don't want to be hearing about Good news and then bad news with the Company seeing the stock go up and down This is a very very consistent company They have a very consistent business Model and a predictable business model And as a result for income investors Boring is good moving on the first con For a t is the fact that we are seeing Seeing this cord cutting Trend Especially among young people where we Don't want to be paying to be a cable
Subscriber and that is a threat to DirecTV and other cable providers out There personally in my household we cut The cord about a year and a half ago and It has saved us a ton of money and most Of my friends my age have never had Cable TV while living on their own just Because it is so expensive and you can Find free videos on YouTube or pay for Cheap streaming services like you know Netflix and Hulu and Amazon video there Are other better options out there Available especially to people on a Budget another con for a t is the fact That they are operating in a cost Sensitive Market this is a market where People have other options if you're not Happy with the price you're paying for Your Wireless Communications and your Cell phone plan then there are many Other options out there and the other Con is the fact that these value options Are improving the packages they are Offering so I'm sure a lot of people Know that a t and Verizon and these big Cell phone companies are typically more Expensive than some of the lower cost Providers out there and I'm going to use Straight talk as an example now if you Compare the customer service between Straight Talk and Verizon and at T it is A night and day difference I am a Straight Talk customer and let me tell You anytime you have to get them on the
Phone and it's an absolute nightmare but There is a significant savings Difference there and the problem for at T is that the value options are Improving this year alone Straight Talk Has increased their data packages I was In the package where I was getting 10 Gigabytes of data and they said okay We're switching it to unlimited data for Just 55 a month so that is a very good Option for people looking for the best Bang for their buck so that is a big Problem for at T is that these value Options while they don't have as good of Customer service and brand recognition They are offering better packages at a Very competitive price so many of these People that do not want to be paying a Lot for their cell phone bill might be Looking for other value options out There another con for at T is that they Are currently involved in a very Complicated did merger with Time Warner It has been approved by shareholders but It is currently tied up in government Regulation and it keeps on getting Pushed off so there's really no say Right now as to whether or not that Acquisition and that merger will go Through but if it does not I would Expect to see a significant dip in a T Stock but as of right now this is just Serving to be a headache for a T stock And at T shareholders as the future is
Very uncertain for this merger and then The final con for at T stock is the fact That this might be a value trap a value Trap is a stock that appears to be cheap But has been cheap for a very long time We're going to look at at T stock later On and compare it to the overall Return Of the market but at T has had very Lackluster performance over the last Couple of years and as a result the only Real appealing Factor here is that 5.4 Percent dividend in my opinion it's a Very high dividend a consistent dividend And so I think a T stock is a great pick For people looking to get consistent Income from the market but they're not So much looking for any kind of crazy Appreciation of the actual stock so I Would say that at T stock is an Excellent choice for somebody who is Looking to just get started with Investing they're looking for a Relatively stable company to invest in You really can't go wrong with at T and Also for somebody who is looking to get A consistent dividend reinvest those Dividends earn that compound interest Then a t is a fantastic pick but now We're going to go ahead and move on to The moat or barriers to entry and talk About what stops me from starting Ryan Scribner's telecommunications company The main moat here for at T is the fact That they have very costly
Infrastructure in fact over the last Five years they have invested 140 Billion dollars into upgrades of their Infrastructure so if I wanted to go out There and start my own Telecommunications company I would have To build all the infrastructure all of The cable lines all these cell towers And as a result it is a very expensive Business with high upfront starting Costs that is what is going to protect At T from other competitors getting into The telecommunications space number two Is the technology a lot of people don't Look at at T as a technology company but They definitely are in fact on average At T is getting five patents for new Technologies every single day and there Is a significant amount of value in that Technology that a t has behind them Number three is the fact that at T and These large telecommunication companies Have leverage they are so large and they Have so many subscribers they can be Incredibly cost competitive and The Leverage allows them to offer services At a cheaper price and again because of The fact that they have DirecTV under Their name and if they do acquire Time Warner they will again have that ability To offer packages of bundled services at A discounted price and that is something That these other telecom companies Simply cannot offer and then fourth and
Finally for a t they have a very strong Brand and they have a very trusted name As far as reliability and service goes And that is something that these value Options just don't have yet they haven't Been around that long at T as we said They've been around for 141 years so There is a significant amount of value In that brand the customer recognition And that reputation anyways guys that Wraps up the beginning of this analysis Now we're going to jump over and look at The fundamentals of a T stock okay so Now we are going to look at the Fundamentals for a t starting by looking At the assets so we see that total Assets have grown every single year with A significant bump in 2015 due to the DirecTV acquisition however total assets Grew just 0.3 percent from 2015 to 2016 However they grew 10 percent from Quarter four of 2016 to quarter three of 2017. cash and cash equivalence grew Significantly over the last four Quarters giving them a cash pile the Growth of total assets was slow between 2015 and 2016 but a 10 increase in the Last four quarters is a plus so a t has Shown steady growth of assets and they Are currently sitting on a lot of cash Moving on now we're going to take a look At the liabilities for at T so we have Seen that total liabilities have grown Every single year with a significant
Bump in 2015 again due to the DirecTV Acquisition and then total liabilities Were consistent from 2015 to 2016. However between quarter 4 of 2016 and Quarter three of 2017 Total liabilities Grew 13.6 percent so from that we can Gather that total liabilities grew Faster than total assets in the last Four quarters now as far as their Short-term debt coverage goes current Assets have great coverage of current Liabilities right now with a 1.6 to 1 Ratio as of quarter three of 2017. now One thing we should note here is that Long-term debt has increased Significantly since 2013 and long-term Debt increased 36 percent from quarter Four of 2016 to quarter three of 2017. Now some investors might not be Comfortable with the long-term debt load Of a t next we are going to look at Cash Flow from operations something that a t Is very well known for so net cash flow From operations is very consistent due To the subscription nature of the Business for a t that is why they are Able to pay such a fantastic dividend to The shareholders so net cash flow from Operations has increased every year Since 2013 excluding the slight decline Between 2014 and 2015. now net cash flow From operations increased 9.6 percent From quarter four of 2016 to quarter Three of 2017. what this shows us for at
T is consistency a plus for income Investors and long-term investors in Order to continue to pay that Stellar Dividend they need to have a consistent Revenue stream and consistent cash flow From operations and at T has both of These total revenue and gross profit Over the last four quarters show Consistency as well a very predictable Income stream for at T and we should Also mention that total revenue has Grown every year since 2013 at an Average rate of 8.4 percent per year That growth rate is satisfactory for Most investors considering the size of a T typically the larger a company becomes The slower they are going to grow and Seeing 8.4 percent annual growth on Average is certainly a plus for my book But now we are going to look at the Disappointing side of a t and that is The actual stock performance over the Last year and over the last five years So at T stock has actually declined over The last year and performance has been Flat over the last five years so over The last one year at T stock is down 11 Percent compared to a 4.63 dip in Diversified telecommunications services So while the industry was down overall a T actually significantly underperformed The Diversified telecommunications Services industry now over the last five Years at T is basically on par with this
Industry ATT stock is up just four Percent over the last five years Compared to a 3.38 return in Diversified Telecommunications Services Now Understand as well the Diversified Telecommunications Services industry has Significantly underperformed the S P 500 Over the last year as well as the last Five years as this is a defensive Industry and as a defensive industry it Is going to underperform in times of a Bull market now in a bear Market Defensive Industries are very good and That is why stocks like at T serve as Safe havens for investors in times of Uncertainty but during a bull market You're not going to see these being Stellar performers because they are very Consistent companies as we said it's a Very predictable and consistent business Model and one of the biggest differences Between defensive and cyclical Industries is the fact that with Defensive Industries even when people Have more money in their pockets during Times of a prosperous economy you are Not going to be seeing more money Directed to these defensive Industries Because it is a very consistent amount Of money we are spending on these Services so one example of this I will Use is your or utilities okay so let's Say you are using a certain amount of Electricity and gas every single month
Well just because you have extra money In your pocket doesn't mean you're going To start leaving the lights on in your House or using more heat you're going to Be using about the same amount of gas And electricity whether or not we are in A good economy or a bad economy and as a Result that is why you see these Defensive Industries underperformed During a bull market so at the moment All at T has to offer shareholders is The dividend there is absolutely no Growth with this stock over the last Year it has been in Decline and over the Last five years A T stock has had very Nominal growth so pretty much all they Have to offer investors is a safe haven As far as times of uncertainty and a Fantastic dividend but if you're looking For more beyond the dividend then at T Is probably not the pick for you and Finally let's cover these key financial Notes so revenue for 2017 came in at 160.5 billion free cash flow for 2017 Was 17.6 billion and free cash flow is Expected to reach 21 billion in 2018. Now at T has said that completing the Time Warner deal is the top priority for 2018 and if that goes through that will Be a definite plus for shareholders now Quarter four of 2017 saw stronger Wireless Customer growth than expected In quarter 4 of 2017 also saw less Subscriber cancellations or that cord
Cutting than expected now 2018 tax cuts Will result in about 3 billion dollars In extra cash which accounts for the Significant increase in free cash flow Expected for 2018 and we should also Mention that the net neutrality repeal Is a plus for a t but they have said so Far that no big changes are planned Anyways guys that wraps up our analysis Of a t I hope you guys enjoyed this Video and I will see you in the next one
