3 ETFs To Profit From The AT&T Purchase Of DirecTV

AT&T T made headlines this week when it announced it would be purchasing DirecTV DTV for $48.5 billion in cash and stock.  

The move underscores a strategic focus to add additional cable subscribers to AT&T’s core business of internet and wireless consumers.  

Both companies expect the acquisition will ultimately add to revenue and free cash flow in the first 12-months, in addition to cutting costs.  
With that in mind, there are several ETFs that stand to benefit from the transaction because of their high stakes in these large companies.

The Fidelity MSCI Telecommunications Services ETF FCOM contains a basket of 31 stocks that are laser focused on major telecommunications companies.  AT&T is currently the largest holding with 24.36 percent of the ETF's total assets.  

This ETF clearly stands to benefit in the long-term if the merger is approved by regulatory authorities and adds to the profitability of AT&T.  

The billions in free cash flow derived from DirecTV operations can help support the quarterly AT&T dividend as well.  Currently AT&T distributes 5.00 percent annually to shareholders, which makes it a favorite among equity income investors.  

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FCOM gained notoriety in its launch last year, along with several other Fidelity ETFs, as being the lowest cost offering among major sector ETFs.  The current expense ratio of FCOM is listed at a slim 0.12 percent and it has posted a gain of 4.75 percent so far this year.  

Another ETF with a similar portfolio of integrated communications stocks is the Vanguard Telecommunications Services ETF VOX, which has a 25.2 percent stake in AT&T according to recent data.  

While it only distributes income annually, VOX has a current 30-day SEC yield of 3.85 percent and has been in existence for nearly a decade.  That longevity has allowed VOX to accumulate total assets of nearly $700 million since inception.

The last ETF set to benefit from the acquisition of DirecTV is the PowerShares Dynamic Media Portfolio PBS.  Currently, DirecTV is the single largest holding in the portfolio with 6.24 percent of the ETFs total asset allocation.  

DirecTV shareholders are set to receive an approximately 10 percent premium from Friday’s closing price in the deal, which only adds to the healthy gains so far this year.  PBS will improve from the strong valuation of DTV stock, which will be converted to both cash and AT&T shares in the near future.

A successful integration of these two digital communications powerhouses will ensure that all of these ETFs are positioned for success over the next several months.