AT&T (NYSE: T) It is considered a good dividend stock due to its high yield. At 5.9%, it is more than four times Standard & Poor’s 500 Average return 1.4%. For income investors, this could be an ideal long-term investment.
But there’s another reason to invest in AT&T: its potential for gains. The company’s shares have risen more than 30% over the past 12 months, but it’s still at a steep discount. Here are three reasons why it could rally in the coming weeks and months.
1. Interest rates may fall.
Many analysts expect the Federal Reserve to start cutting interest rates later this year, perhaps as early as September. If that happens, it could spur some additional upside for high-yielding stocks like AT&T. If rates fall, it means investors earn less from bonds and other investments, leaving them more vulnerable to losses. Dividend Stocks More attractive in comparison.
If the Fed starts with an initial cut, it could create expectations of further cuts that may follow, especially given how cautious and conservative the Fed is about cuts and not making them too early.
2. Strong quarters for the company may lead to increased dividends.
With AT&T continuing to perform well, it may only be a matter of time before the company raises its high-yielding dividend. Investors may have been concerned about dividends in the past, but those concerns appear to be easing, with the company’s stock rising amid some strong quarterly results.
For the most recent period, which ended in June, total revenue was $29.8 billion, broadly similar to $29.9 billion a year earlier. Adjusted operating income of $6.3 billion was slightly lower than $6.4 billion in the year-ago period.
Although its revenue and earnings haven’t grown significantly, AT&T’s financials have been relatively stable, which is what investors need in order to have confidence that the dividend is truly safe.
With the company’s modesty Payment ratio The company’s net profit ratio is around 64%, and I wouldn’t be surprised if management decided to increase the dividend later this year if results hold steady. That would be a positive signal to investors, showing confidence in the company, and could drive the stock price higher.
3. Phone upgrade cycle may be coming
New phones with AI capabilities are expected to launch this year, which could give consumers a reason to replace phones they’ve had for a while. The new phones and service plans could be a welcome boost to AT&T’s business, potentially leading to much stronger growth.
The question is how quickly this will happen; many appleThe new AI features won’t be available until 2025. Some consumers may want to see how much these features change, but many others may be inclined to upgrade before that happens anyway.
the alphabet AT&T has already launched its own AI phones, but with more excitement around AI this year, there could be a wave of phone upgrades in the coming months, which would be great news for AT&T.
Is buying AT&T stock a no-brainer?
While AT&T shares have been on the rise over the past year, the stock remains cheap, trading at less than nine times its expected future earnings (based on analysts’ forecasts). For income investors, I think this is a no-brainer buy with a large dividend that looks secure, and there’s much more room for the stock to rise.
The danger in waiting too long is that as the stock continues to rise, the yield will fall; there is too much incentive to buy now and lock in that higher yield.
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Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Gagielski The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Apple. The Motley Fool has Disclosure Policy.
3 Reasons Why AT&T Stock Is Going Up This Year Originally posted by The Motley Fool
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