Is AT&T Inc. (NYSE:T) Good for Income Investors?

July 24, 2017, 10:56 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

AT&T Inc. (NYSE:T) has recently lost significant market share to smaller rivals providing wireless telephone services such as T-Mobile US Inc (NASDAQ:TMUS) and Sprint Corp (NYSE:S). The smaller carriers seem to have finally figured out how to grow their customer bases, which has led to them successfully poaching customers from AT&T.

AT&T stock has been declining since March this year, which has culminated in a total loss of about 15% of its share value. Many income investors would see this as an opportunity to acquire the company’s shares at a cheap price.

It is quite likely that the company will increase its revenues after the release of the iPhone slated for later this year given that about half of its revenues are generated from mobile wireless service contracts.

The company is also likely to finalize the acquisition of Time Warner Inc (NYSE:TWX), which would create an additional income stream for AT&T. However, the acquisition of Time Warner could leave AT&T with about $170 billion in debt, which would increase its debt to earnings ratio, yet this is a major concern for investors.  

Sprint has launched and aggressively marketed its promotions, which have forced AT&T to cut its effective pricing of contracts in order to compete, leading to lower profit margins. This is a major concern for investors as it seems that there no respite in sight for the giant telephone carrier, which is likely to continue losing customers into the future.

The high rate of wireless adoption in the US market means that there is little room for growth in the industry. Therefore, the big four carriers have to undercut each other in order to increase revenues and grow their customer bases.

There is still hope for AT&T given that its business solutions division accounts for about half of the company’s profits. However, this segment has not been growing, according to data from the first quarter, but there is an existing opportunity for future growth.

For income investors, the question remains whether AT&T stock has hit a bottom, which could mean that it will rally higher in the near future; this would make it a suitable investment.

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