The Motley Fool: AT&T should prosper with DirecTV purchase

Get your blue chip dividend income here: Telecom giant AT&T (NYSE: T), enjoying subscription-based revenue streams and relatively stable cash flows, pays a dividend that recently yielded 5.3 percent. AT&T is a dividend aristocrat that’s upped its payout every year for more than 30 years.

The company’s $49 billion acquisition of DirecTV is a game changer that will allow AT&T to offer attractive bundles of wireless phone, TV and broadband Internet services. In addition, AT&T gets DirecTV’s fast-growing TV business in Latin America. Thanks to this deal, cash flow and earnings should increase, with AT&T projecting “$2.5 billion or better annual run-rate cost synergies” to help boost its bottom-line growth through 2018.

In its fourth quarter, AT&T’s revenue surged, while earnings met expectations. It added 2.8 million wireless connections, though wireless revenue dropped by 5 percent due in part to lower equipment sales.

AT&T’s future holds promise, but it’s not guaranteed to be rosy. The company is facing challenges, such as cord-cutters abandoning pay TV and growing price competition in the wireless arena. Auspiciously, AT&T is investing in a connected world, expanding its high-speed fiber network to dozens of new cities – a move that could eventually generate fresh streams of revenue for the company. Its stock seems reasonably to attractively valued at recent levels, but investors should keep an eye on developments – while enjoying generous dividend income.

Ask the Fool

Q: How can I learn who’s on a company’s board of directors? - J.A., Augusta, Georgia

A: Try the company website first, looking for links labeled something like “Company Information,” “About Us,” “Investors” or “Corporate Governance.” You can also just call the company’s investor relations department and ask.

Most annual reports detail the members of the board, often with glossy color photos. You’ll likely find a list of board members and their responsibilities, compensation and stock ownership in annual 10-K reports and proxy statements that the company files with the Securities and Exchange Commission (SEC). Click over to finance.yahoo.com and enter the company’s name or ticker symbol.

Q: What are “defined contribution” and “defined benefit” plans? - H.T., Pleasanton, California

A: They’re the two main kinds of retirement plans. An old-fashioned pension is a defined benefit plan, with workers knowing exactly what they’ll receive in retirement. Employers are tasked with accumulating funds to meet these obligations.

In recent decades, though, defined contribution plans, such as 401(k)s and 403(b)s, have become the norm, replacing many traditional pension plans. With them, the amount of money contributed into the plan is defined: You know how much you and your company are depositing into your account. The sum available at retirement, though, is uncertain and will depend on how effectively the contributions are invested. You have more control over defined contribution accounts, as you can usually specify how your dollars will be invested (such as in growth mutual funds, company stock, bonds, etc.).

With investment results uncertain, it’s vital to plan effectively for retirement. You’ll find practical guidance at fool.com/retirement and in our “Rule Your Retirement” newsletter, which you can try for free at fool.com/shop/newsletters.

My dumbest investment

Sysco was the first stock I ever invested in. I bought shares when I turned 18, and it turned out to be a quality stock. In a way, though, it was a dumb investment stock for me – because I thought I was buying Cisco Systems, not Sysco. I literally did NO research before investing. I didn’t even know the ticker symbol or how to spell the company name. – I.C., online

The Fool responds: You’re lucky that the mix-up ended well for you. Over the past five, 10 and 20 years, Sysco stock outperformed Cisco stock, though both posted gains over those periods. Cisco spent many years as a market darling, as it was a key player in telecommunication equipment. But it has struggled in recent years, facing more competition and price wars, and has been working to transform itself into a more multifaceted information technology company. Over the past five and 10 years, its stock lagged the S&P 500’s return.

Sysco, meanwhile, is a food distribution powerhouse, with a long history of paying solid dividends. It, too, has faced some challenges, such as inflation and high food costs, competition and tight profit margins. Both companies offer hefty dividend yields, recently topping 3 percent.

You were lucky that your ticker-symbol mix-up plunked you in a strong company. It’s critical to learn a lot about a company before investing your hard-earned dollars in it.