AT&T (T) has something income-focused investors covet: a sizable dividend. The telecommunication leader’s shares currently yield a hefty 6%, placing it among the highest-yielding stocks in the market.

But there’s more to a great investment than just a large cash payout. Here’s what makes AT&T a great buy today.

Strong customer growth
After an unfruitful attempt to branch out into media and entertainment, AT&T has worked to streamline its operations. A divestiture of its Warner Media assets in April has allowed the telecom giant to place a greater emphasis on its core wireless and broadband internet businesses. Those efforts are already paying off for shareholders.

AT&T’s investments in its 5G network are helping it acquire new customers at an impressive pace. It added 708,000 postpaid phone subscribers in the third quarter and a total of more than 2.2 million during the first nine months of 2022. These people pay monthly bills and are typically the most valuable customers for wireless companies. AT&T ended the quarter with 69 million postpaid phone subscribers.

AT&T also gained 338,000 fiber internet customers. That brought its total fiber subscriber count to 6.9 million, representing 21% year-over-year growth.

Management sees more growth ahead
At a recent analyst conference, Chief Operating Officer Jeff McElfresh said AT&T would employ a disciplined investment approach that would seek to balance growth while still generating solid near-term returns to shareowners.

He expects demand for 5G connectivity services to fuel continued increases in AT&T’s phone subscriber base. McElfresh also projected that the company will be capable of serving a total of more than 30 million locations with fiber internet by the end of 2025, up from 18.5 million consumer and 3 million business locations at the end of the third quarter.

McElfresh also said AT&T will wring out more cost savings from its past investments, which should help to boost profits. The company, in turn, reiterated its goal of generating $14 billion in free cash flow in 2022, even as it spends $24 billion to upgrade its network.

With approximately $8 billion in projected annual dividend payments, AT&T’s payout to investors is well covered. The telecom could also use its excess cash flow to pay down its debt, which would further bolster its already impressive cash flow production.

AT&T’s stock is cheap
Better still, AT&T’s shares are trading for only 7.6 times trailing earnings. Its price-to-earnings (P/E) ratio falls to an even lower 7.2 based on analysts’ profit estimates for 2023. Those are big discounts to the trailing and forward P/E multiples of the S&P 500 index, which stand at 18.9 and 17.8, respectively.

AT&T’s low-priced shares, combined with its high dividend yield, should help to reduce the risk of loss for investors. And with its stock yielding 6%, shareholders can earn solid returns even if its share price remains stagnant. This favorable risk-to-reward profile makes AT&T an attractive buy today.

Moreover, the current bear market is driving investors to seek out lower-risk stocks. The rising demand for safe investments could drive up the prices of stable, dividend-paying stocks like AT&T in 2023, particularly if the market remains volatile. Consider buying now, ahead of those potential gains, while AT&T’s stock is still inexpensive.

— Joe Tenebruso

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Source: The Motley Fool