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Forget Netflix, Buy These 4 Dividend Growth Stocks Instead

Netflix (NFLX) stock rose 10% after the company’s July 17th earnings report, as the Internet streaming service added more than 5 million subscribers last quarter. Consumers are cutting the cord, and Netflix has taken full advantage. Its share price has rocketed as a result.

Consider that, on July 20th, 2012, Netflix stock closed at $11.69 per share. Five years later to the day, the stock closed at $183.60. Netflix is riding the cord-cutting wave. But now is not the time to jump on board. Netflix’s underlying business model is questionable. The company is racking up millions of new subscribers, but needs to spend huge amounts of money to do so. Its bottom line has little to show for its impressive subscriber growth. Today, Netflix shares trade for a valuation that should make value investors queasy. And, there is little chance Netflix will pay a dividend any time soon, which makes it unappealing for income investors as well. For value and income investors, the following four media dividend growth stocks are much better options than Netflix.

Media Dividend Stock #1: AT&T (T)

Dividend Yield: 5.4%

Price-to-Earnings Ratio: 12.8

AT&T is an obvious choice for dividend growth investors, because of its long history of steady dividend increases. It has raised its dividend for 33 years in a row. It is a Dividend Aristocrat, a group of 51 stocks in the S&P 500 with 25+ consecutive years of dividend increases. You can see the entire list of Dividend Aristocrats here.

And, AT&T has a very attractive dividend yield. It is one of 405 stocks with a 5%+ dividend yield. You can see the full list of established 5%+ yielding stocks here.

Most investors know AT&T as a telecom giant. But it will soon become a major player in the media industry as well, assuming its massive acquisition of Time Warner (TWX) receives regulatory approval.

AT&T and Time Warner have come to a definitive agreement to merge, in a $108.7 billion deal, including Time Warner’s debt.

The acquisition will present a host of growth opportunities for AT&T. It will also diversify AT&T’s services, by giving the company a huge presence in content. Time Warner is a media giant, with cable properties including TNT, TBS, and CNN, along with premium channels HBO and Cinemax.

Time Warner’s premium networks alone have nearly 50 million subscribers. Time Warner also owns the Warner Bros. movie studio.

Source: Time Warner Acquisition Presentation, page 6

Combined, AT&T would have more than 140 million mobile customers, and 45 million video subscribers, around the world.

The acquisition could also help AT&T leverage its existing services. With Time Warner in tow, AT&T will be able to deliver content to its more than 100 million customers on every screen. Furthermore, owning content could give AT&T additional bargaining power with advertisers.

As a result, AT&T could see new growth not just from adding subscribers, but from advertising as well.

AT&T has a very attractive dividend yield of 5.4%. It can afford to pay its generous dividend, because the company is a cash cow. In 2016, AT&T grew revenue by 12%, to $168 billion. Free cash flow rose 7%, $16.9 billion for the year. In terms of free cash flow, AT&T maintained a 70% dividend payout ratio last year, which leaves plenty of room for continued dividend growth. AT&T’s adjusted earnings-per-share of $2.84 in 2016, more than cover its current annualized dividend of $1.96 per share. The company performed well again in the first quarter. Operating cash flow rose 17%, to $9.2 billion, and free cash reached $3.2 billion for the period.


Source: Q1 Earnings Presentation, page 5

Revenue declined 3% for the quarter, versus the same quarter last year, but earnings-per-share increased by 3%. Operating margin expanded by 80 basis points from the same quarter last year. The revenue dip was due largely to weak equipment sales, including phones. However, the long-term growth story remains intact for AT&T. For 2017, AT&T expects full-year adjusted earnings-per-share to increase in the mid-single digits. Free cash flow is expected to grow 7%, to $18...


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