AT&T (NYSE:T) generated significant returns for investors last year, supported by its acquisitions and aggressive expansion strategies. The company currently offers a solid dividend yield of 4.75%. Recently, AT&T announced a dividend increase of more than 2%, a 33rd consecutive year of dividend increase.
The company has also been returning significant cash to investors through share buybacks. In the latest quarter alone, it has returned almost $267 million to investors through share repurchase program.
On the other hand, AT&T has also increased investors profits through share price appreciation. In the last twelve months alone, T’s share price surged 23%, extending five-year rally to nearly 40%.
However, AT&T’s share price still looks undervalued considering a strong growth in its sales and earnings compared to its share price appreciation. The company’s shares are currently trading around only 17 times to earnings, when the industry average is about 19 times, indicating a strong upside potential for T’s stock price.
Moreover, the company’s future fundamentals look very strong considering its recent acquisitions and innovations. In the latest quarter, the company’s sales increased almost 4.6%, while operating earnings grew 8% over the same period last year. AT&T’s recent DIRECTV acquisition added significant growth to the company’s financial performance. Its net income increased at a double-digit rate in the last quarter and the company expects similar growth in the final quarter of 2016.
Moving forward, the company plans to make an $85-billion acquisition of Time Warner, which could significantly expand its revenue base. Furthermore, AT&T has recently unveiled its plans for 5G wireless tech, including testing the delivery technology for its DirecTV streaming video service. Therefore, the company’s share price has significant upside potential in the coming days on the back of its expansion strategies.
On the other hand, its dividends are safe, thanks to its strong cash generating potential. In the last nine months, AT&T generated operating cash flow of almost $30 billion, compared with dividend payments of $8.8 billion. Thus, the company appears in a strong position to invest in growth opportunities along with returning significant cash to investors.
The author has no positions in the above mentioned companies.