The Newsvesting team chose AT&T (T) as our “Big Pick” for the last month of 2017. And our examination of the news swirling around the company, combined with what was clearly going to be a major shift in public policy had us racing to purchase this dividend rich stock. Here’s why we chose to buy and why we will be holding and adding to it in the coming months.
As rumors of a Justice Department challenge to AT&T’s purchase of Time Warner swirled in early November and became reality on November 20th,the price of T was sliding. We could understand the reaction, given that conventional wisdom is that the large telecoms must find ways to create their own content in order to survive the so-called “cut the cord” movement. A movement away from the consumer’s past dependence on cable and satellite delivery of television and movie content.
We started purchasing AT&T as early as July of this year, once it started to become clear that the FCC’s now Trump dominated composition was determined to reverse the “net neutrality” rules set in place during the second administration of Barack Obama. In the book “Newsvestimng” there is a chronology of the the Obama FCC’s move towards protecting companies like Google and Facebook from the imposition of additional costs by internet provifders such as T for their substantial use of the “internet highway.”
While the Time Warner deal was front and center of the headline’s (including President Trump’s disdain for their cable news holding, CNN, there seemed to be less discussion of the potential upside of a reversal of “net neutrality.”
We’ll get into more detail after we present the math (and gains) from our pick. As of December 22nd our Newsvesting in AT&T had earned a 2.48% increase in stock value in less than six months. That may sound meager, given the huge rise in the Dow, NASDQ, and S&P over that same time period. But AT&T brings with it a low beta and more importantly
a current dividend yield of over 5%.
AT&T is down over 8% for the year, but it was clear the winds were shifting in the latter part of the year. So why are we sticking with T? First, we doubt the Justice Department will prevail in killing the Time Warner deal. It’s hard to imagine that Comcast can own a network like NBC along with other content providers and yet AT&T’s ownership of a Time Warner would kill competition. Moreover, the net neutrality reversal gives T a huge new source or revenue, should the company choose to start making use of its broadband network more expensive for large “net hogs” such as Facebook and Google. For the moment, the big internet providers claim they have no such plans.But their words are carefully chosen. Companies such as AT&T, while vowing no additional charge for access to the web, don’t rule out broadband “Lexis Lanes” where content providers could pay to accelerate delivery on the internet. If nothing else the new rules provide a great insurance policy going into 2018. We will stick with T with a longterm hold.