Should You Buy It?: AT&T Answers the Call

Any discussion of AT&T has to include the stock's 4.8% dividend yield, which is twice the average payout of the benchmark S&P 500. The company pays out 40 cents a share each quarter and has boosted the dividend 23 consecutive years. Management is on track to cover the payment 2.1 times, with expected 2009 earnings of $3.36 a share.

AT&T also used free cash flow to reduce debt and buy back 52 million shares during the quarter. The company maintains a solid balance sheet, with a 28% debt/total asset ratio that garners an A rating for its corporate bonds.

At current levels, the stock is valued at 11 times expected full-year earnings of $3 a share. This compares to the 13.8 times earnings multiple that Verizon currently garners, and is also a 33% discount to AT&T's average valuation over the past decade.

With that in mind, I believe that the stock is attractive to purchase at current levels. Wireless and the new U-verse rollout should drive growth and help offset wireline gains. In the meantime, the dividend appears secure and offers investors some stability in this volatile environment.

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David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback; click here to send him an email.

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