Why AT&T was up 11% last month
Shares of AT&T (T -1.44%) rose 12.9% in May, according to data from S&P Global Market Intelligenceafter the telecommunications giant announced that it was raising the prices of its old wireless plans for the first time in years.
The increase would see the monthly cost of individual plans increase by $6 per month while family plans would increase by $12 per month. The price increases do not affect AT&T’s new unlimited plans.
Although analysts fear AT&T’s increases will cost it dearly from customers who might switch to T-Mobile Where Verizon as the industry has long competed by offering discounts to customers, carriers are not immune to rising costs in this time of inflation.
CEO John Stankey, for example, told analysts that labor costs “added something with a B into the overall cost structure,” i.e. $1 billion, from so price increases are essential and may also allow rivals to raise rates. This would offset any competitive advantage they might otherwise possess.
AT&T, however, was recently freed from the shackles of its Warner Bros. entertainment division. He merged the company with Discovery to form Discovery of Warner Bros., which began trading independently in April. In return, AT&T received some $43 billion to pay off debt and invest in its 5G telecommunications business.
Verizon’s own quarterly report showed it was losing market share at a time when the market for 5G networks is becoming increasingly competitive and could be worth as much as $31 trillion by 2030. Carriers are expected to receive about $3.7 trillion of that value as consumers spend more on enhanced video, augmented and virtual reality, and digital games on 5G networks.
AT&T expects revenue to grow in the single digits this year and next year and adjusted earnings per share to grow 2% in 2022 and up to 7% in 2023. It also thinks it can generate $20 billion in free cash flow next year. , of which approximately 40% will be available to be spent on dividends.
The dividend cut it took on the Warner Media calving deterred many investors who invested in telecoms solely for the payout and high yield it offered. Yet even though the reduced dividend still yields 5.2% per year, it still remains a top pick for income investors.