Big Deal

The Standard and Poor’s downgrade of US credit only strengthens the argument for investing in rock-solid dividend-paying stocks. What’s more, a landmark deal is in the works for this telecommunications giant.

The story had already been written. After enjoying exclusive rights to Apple’s (NSDQ: AAPL) popular iPhone since 2007, AT&T (NYSE: T) in February squared off against perennial rival Verizon Communications (NYSE: VZ), which began to sell the iPhone 4. With Verizon in the mix, AT&T’s hold on the iPhone market would disappear, as would one of its most significant competitive advantages.

But a rewrite may be in the works. The country’s second-largest wireless communications company recently marked its first full quarter without iPhone exclusivity, and the results were encouraging. AT&T activated 3.6 million iPhones in the second quarter compared with 3.2 million the previous year; Verizon activated 2.3 million iPhones. Furthermore, the company second quarter results demonstrate that AT&T still packs a punch.

At first glance, the numbers don’t appear earth shattering. Net income declined by 10.3 percent year over year to $3.6 billion and earnings per share came in at $0.60—a stable figure from the year-ago period.

Revenue rose a respectable 2.2 percent to $31.5 billion. But a deeper inspection of the sales data reveals that revenue from wireless data services jumped 23.4 percent, representing an annualized value of $22 billion. AT&T added 1.1 million wireless subscribers in the quarter to bring the total to 98.6 million and the number of post-paid subscribers rose by 331,000, beating analysts’ estimates.

AT&T’s U-Verse service, which bundles Internet, telephone and television into a single package added 202,000 U-Verse subscribers for a total of 3.4 million. U-Verse revenue surged 57 percent year over year to $1.6 billion.

AT&T recently raised its 2011 capital expenditure target to $20 billion from about $19 billion, much of which will likely be spent building out its fourth-generation (4G) networks.

Providing 4G services is at the heart of AT&T’s proposed $39 billion acquisition of T-Mobile from Deutsche Telekom (OTC: DTEGY). The deal, which is currently under federal review, would reportedly bring 4G services to 97 percent of the US population and forge AT&T into the country’s largest mobile communications company.  

However, the deal has already come under scrutiny from Democratic lawmakers who argue that the resulting market duopoly would hurt consumers. AT&T executives remain confident the acquisition will close by the first quarter of 2012. But it’s difficult to handicap the chances that the T-Mobile acquisition will pass regulatory muster. Yet, AT&T has much to offer income-seeking investors. The company paid $2.5 billion in dividends in the second quarter and the stock sports a dividend yield of 5.98 percent—reason enough to consider this venerable name.

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