AT&T Stock Is Cheap. Why It’s One of Barron’s Picks for 2022.

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A sign is posted in front of an AT&T retail store
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This article is an excerpt from Barron’s 10 favorite stocks for 2022. To see the full list, click here.

There is a price for everything, including AT&T , which recently hit a 13-year low. The stock, now around $23, is off 18% in 2021 and amounts to a cheap play on the depressed telecom and media sectors.

The shares have been hit lately by renewed concerns about competitive conditions in the wireless market. The bull case is that AT&T (ticker: T) will become a simpler company with less debt after it combines its WarnerMedia business with Discovery (DISCA) in a deal due to close in mid-2022. A more focused management could deliver strong results after years of distraction from overpriced acquisitions.

And the wireless business could get more rational, considering that there are only three leading players: AT&T, Verizon Communications (VZ), and T-Mobile US (TMUS).

AT&T now yields 9%; that should fall to about 6% after a planned dividend reduction following the WarnerMedia deal. Here’s the math: AT&T plans to pay out about 40% of $20 billion in projected 2023 free cash flow. That equates to a roughly $1.10 annual payout. That should translate into a 6% yield after reflecting the current value of Discovery stock that will be received by AT&T.

The company may spin off Discovery to holders or exchange the Discovery stock for AT&T shares with holders in a split-off. Whatever the mechanism, AT&T should have one of the highest yields in the S&P 500.

Company / Ticker Recent Price YTD Change 2021E EPS 2022E EPS 2022E P/E Dividend Yield Market Value (bil) / AMZN $3,377.42 4% $41.11 $51.37 65.7 None $1,713
AT&T / T 23.71 -18 3.38 3.17 7.5 8.8% 169
Berkshire Hathaway / BRK.A 454,550.00 31 17,466.30 18,928.50 24.0 None 673
General Motors / GM 58.39 40 6.73 6.93 8.4 None 85
Hertz Global Holdings / HTZ 21.01 -22* 4.02 2.55 8.2 None 10
IBM / IBM 125.93 5 10.05 11.04 11.4 5.2 113
Johnson & Johnson / JNJ 173.01 10 9.83 10.38 16.7 2.5 455
Nordstrom / JWN** 20.05 -36 1.27 1.99 10.1 None 3
Royal Dutch Shell / RDS.B 42.82 27 4.86 6.19 6.9 3.9 166
Visa / V*** 214.37 -2 5.91A 7.04 30.5 0.7 467

*Since July 1. **Estimates for Jan. 2022 and Jan. 2023 fiscal year ends. ***Sept. fiscal year end. E=estimate. A=actual.

Source: FactSet

Write to Andrew Bary at

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