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AT&T (NYSE:T) is a good dividend share thanks to its high yield. At 5.9% this is more than four times as much S&P500 average 1.4%. For income investors, it can be an ideal long-term investment.
But there’s even more reason to invest in AT&T: the potential upside. Shares are up more than 30% in the last twelve months, but it’s still a stock at a steep discount. Here are three reasons why rates could still rise 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, possibly as early as September. If that happens, it could add additional bullishness to high-yield stocks like AT&T. If interest rates fall, this means that investors earn less return on bonds and other investments dividend stocks more attractive in comparison.
And if the Federal Reserve begins its first cut, it could raise expectations that more cuts could follow, especially given how cautious and conservative the Fed has been with cuts and not implemented them too early.
2. Better quarters for the company could lead to a dividend increase
As AT&T continues to perform well, it could only be a matter of time before it increases its high-yield dividend. Investors may have been concerned about the dividend in the past, but those concerns appear to be subsiding as the company’s stock is growing amid some solid quarterly results.
In the most recent period ending in June, revenue was $29.8 billion, quite similar to the $29.9 billion it reported a year ago. Adjusted operating income of $6.3 billion was also only slightly lower than the $6.4 billion in the same period last year.
While revenue and earnings haven’t grown dramatically, AT&T’s financials have remained relatively stable, which is what investors need to feel confident that the dividend is truly safe.
With the company modest payout ratio of around 64%, I wouldn’t be surprised if management increases the dividend later this year if results remain consistent. That would be a positive sign for investors, a sign of confidence in the company, and it could drive the stock price even higher.
3. There could be an upgrade cycle for phones
New phones with artificial intelligence (AI) capabilities are coming out this year, and that could give consumers a reason to finally replace phones they’ve been holding on to for a while. New phones and plans would be a welcome boost to AT&T’s business, which could lead to much stronger growth.
The question is how quickly that will happen; a lot of Apple‘s new AI features won’t be available until 2025. Some consumers may want to see how these features are game-changing, but many others might be tempted to upgrade before they do.
Alphabet has already launched its own AI phones, but with even more excitement surrounding AI this year, there could be a wave of phone upgrades in the coming months, which would be great news for AT&T.
Are AT&T Stocks a No-Brainer Buy?
Even though AT&T’s shares have risen over the past year, the stock remains cheap, trading at less than nine times estimated forward earnings (based on analyst expectations). For income investors, I think this is a no-brainer buy with a great dividend that looks safe, and there’s potentially a lot more room for the stock itself to go much higher.
The danger of waiting too long is that as the price continues to rise, the return will fall; there’s plenty of incentive to buy now and secure that big payout.
Should You Invest $1,000 in AT&T Now?
Consider the following before buying stock in AT&T:
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet and Apple. The Motley Fool has one disclosure policy.
3 reasons why AT&T stock could soar higher this year was originally published by The Motley Fool