My Call on AT&T

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I’ve put off analyzing this stock for a while because the price movement over the last 5 years is choppier than I like to see. However, I’m no longer a “speculator,” I am an investor, and it’s time to do my homework. AT&T (T) is an communications company offering services and products that cover long distance, wireless communication, broadband and internet services. Their original partnership with Apple for the iPhone helped a lot in establishing brand loyalty, which will pay off as smartphones are becoming more commonplace. AT&T’s marketshare is currently second only to Verizon (VZ) for mobile carriers. This could all change very quickly because it’s in a very competitive industry.

AT&T looks fantastic on paper for a dividend investor that is just getting started. The P/E Ratio is currently at right about 10 which is well below my threshold of 20. This low ratio means that the yield can be quite high without sacrificing payout ratio, which is the case in the 5.4% yield and 53% payout ratio. This leaves room for the dividend to grow, which it has been doing for the past 30 years. Unfortunately, like many other high yield dividend stocks, their dividend growth for the past 10 years has not been impressive, averaging a little over 4% per year.

Luckily, a high current yield can mean this investment can provide you with quick cash to invest in dividend payers with a higher growth rate. High yields can also still out perform high growth low yield stocks. If you invested $1000 in this stock 10 years ago and reinvested all dividends, you would now have about 138.29 shares worth $4714.31 paying out $250.30 dividends each year, this is significantly higher than some of the higher growth stocks I am currently invested in.

I think today’s price on AT&T is a pretty decent value. I still have to do my taxes, so I’m not sure if I’m going to have the free cash to invest any time soon. But if I do, AT&T seems like a decent choice.

What are your thoughts on AT&T?

Also, if you’re looking for some good dividend stock ideas, Check out Dividend Growth Stock Investing. Dan has compiled the favorite dividend stocks of many dividend bloggers including myself.

Comments


Kevin said:

I’m hoping I have the extra cash on hand before the 10th to make my entry on AT&T assuming the other stocks I’m looking at don’t seem as attractive. I’m currently also looking into COP, VZ, IBM, and GE. It seems like I’m currently a month late on a good entry point for AT&T though.

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I like AT&T and have own few stocks. I will add more stocks once I have some cash available.

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I think AT&T looks interesting right now. I like the higher current yield which is appealing at the moment when many companies are offering yields within the 2-3% range. I’ve been looking at AT&T along with a couple others to try and figure out my soon to be newest purchase. I’ve been a little turned off by T in the past due to the lower growth, but I believe the higher initial dividend yield could make it worth a position in my portfolio.

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Kevin said:

I hear ya Dan. I tend to be more attracted to growth potential, but the math on high yield stocks is impressive as well. My current situation is going to make me lean more towards short-term gains this year, so T is looking strong.

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