Published: July 1, 2010

This past weekend Apple (Nasdaq: AAPL) customers waited in lines across the country to buy the new iPhone 4. Apple sold a remarkable 1.7 million iPhones in the first three days alone. This comes on the heels of a great showing for the debut of the tablet PC, aptly named the iPad. More than three million iPads have been sold during the first 80 days since its release.

Investment banks and analysts have been rushing to upgrade shares of the tech giant as a result. Bullish analysts are placing estimates as high as $350 on the shares. But the experts appear to be overlooking a major beneficiary of the iPhones' and iPads' huge sales numbers.

That overlooked company is telecommunications giant AT&T (NYSE: T).

AT&T is reaping the rewards of the brand loyalty of Apple customers. AT&T currently has 85 million subscribers worldwide. With the release of the new iPhone 4, the company stands to lock in millions of new and returning subscribers with a minimum two-year contract.

So far, about 77% of iPhone 4 sales have gone to existing iPhone customers. Another 16% of new iPhone buyers left their current carrier to join AT&T and the remaining 7% were AT&T customers that upgraded to an iPhone. These numbers should translate into increased long term revenue from the sale of more data plans.

It's important to note that there are concerns about AT&T potentially losing its exclusivity agreement with Apple to sell the iPhone. There are rumblings that Verizon (NYSE: VZ) and Apple are close to striking a deal that would allow Verizon to roll out an iPhone of its own, potentially dealing a blow to AT&T's growing subscriber base.

AT&T recently halted its flat rate pricing for unlimited data plans. New customers will have to pick from tiered data plans from now on. Customers that exceed two gigabytes of data on the upper-tier plan in a month will have to pay for additional usage. This could be a significant revenue driver for AT&T as customers continue to consume more data at faster speeds. And the potential for higher revenue is only growing with the increasingly popularity of apps, downloadable movies and video games.

Last quarter, AT&T added nearly two million new cell phone subscribers and 500,000 customers who are locked into long term contracts. Wireless data revenue grew by +30%. Operating margins were solid at 17.6%.

AT&T generated $40 billion dollars in revenue from its wireless and wireline businesses last year. This year, the company expects to earn more than 50% of revenue -- $62 billion dollars from these two business units alone.

And while AT&T's landline business is in decline, growth in the broadband Internet and mobile phone business should be more than enough to offset the decline in revenue while churning out plenty of cash flow.

Action to Take ---> AT&T appears to be selling at a discount. Shares are valued at just 10 times next year's earnings, below the industry average of 12.4. The stock is also trading at a cheaper valuation than its main competitors, Verizon and Sprint (NYSE: S).

AT&T is worth buying for the dividend alone. The stock sports an incredibly generous dividend yield of just over 6.5%. The dividend appears safe. AT&T is currently paying out 74% of earnings in the form of dividends. While the payout ratio is high, AT&T has been able to increase its dividend for 26 consecutive years. There is no reason to believe that AT&T will not be able to sustain its dividend going forward. With such a hefty dividend, investors will be rewarded handsomely just for holding shares while they wait for the market to see the underlying value in the shares and they begin to appreciate.

-- Mark Riddix
Contributor
StreetAuthority