LAS VEGAS — Who knew? I got something right. About a month ago, I advocated a complex trade involving AT&T. The main premise: The stock was cheap, the dividend was large, and there is a tendency for it to move up into the dividend payment date.
So far, so good. AT&T is up about 10% since we looked at the trade. It’s still set to pay a dividend that will pay about 6%. The front-month options tripled into the expiration last Friday. I sold the stock and the options with a collective 20% gain in one month, but I probably pulled the trigger too early. AT&T has exhibited more stength today and likely will rise further on the wireless hype associated with CTIA.
Verizon, coincidentally or not, is also benifitting from the pattern of rising into the next quarter’s dividend payment. Verizon is priced a little higher than AT&T, with a P/E of 23 versus AT&T’s more modest P/E of 12. Verizon also pays a 6% dividend.
The largest North American service providers such as AT&T and Verizon both pay juicy dividends and will likely get a lot of attention here at CTIA, where every device manufacturer and their cousin will be making announcements about new smart devices on their network. These devices, many of them Android-powered, will be more open and Web-enabled than ever before. And they will be data-hungry.
In its last earnings release, AT&T announced that growth in wireless data services and applications grew 26%, indicating that this is where the growth lies. I think more complex and data-hungry devices will only help this trend.
AT&T announced today that it’s adding new Palm and Dell smartphones to its lineup.
Everybody is also closely watching the 4G service annoucements here at CTIA, which will unleash even more bandwidth for data-hungry services. I think the bottom line is that these trends will be good for the leading service providers, including AT&T and Verizon.
AT&T, Verizon, and Sprint are likely to do a lot of sparring here about their next-generation wireless data services. In fact, it’s already started. The bottom line? AT&T and Verizon appear to be consolidating their lead, and a wide range of data-hungry smartphones should be good for business.