AT&T (NYSE:T) continues to march forward with its integration of WarnerMedia in its business. Income investors will like the firm’s outlook, released on Nov. 29 at an analyst meeting.
The telecom giant, whose shares yield a dividend of ~6.5%, forecast improved free cash flow growth, to $26 billion, in 2019. EPS will grow in the single digits. The dividend payout will be in the high 50% range. The high debt will stretch the balance sheet with net debt/EBITDA at 2.5 times by year-end 2019. Spending of $23 billion (gross capital investment) should be good news for telecom suppliers.
Integration of WarnerMedia will progress with $2.5 billion in synergies by year-end 2021. This comes from a mix of revenue synergies ($1 billion) and cost synergies ($1.5 billion).
Decent Numbers
The single-digit growth sounds unimpressive on the surface yet its pace is most suitable for income investors holding AT&T stock. It will still pay a dividend and those reinvesting it back to the stock will reward the patient shareholder. Furthermore, the three-tiered streaming service has growth potential. Investors get a Netflix-like (NASDAQ:NFLX) stock without paying the multiples.
At these levels, AT&T continues to look attractive. Invest gradually into the stock. As 5G gets rolled out, cash flow comes from the telecom side.
The content side is a low-risk unit for AT&T.
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