Incorporated on October 5, 1983 and based in Dallas, Texas, AT&T Inc. (T) is a holding company providing telecommunication services in the United States and worldwide. Services include wireless communications, local exchanges, long-distance services, data/broadband and internet services and many other services. In March 2014, the company completed the acquisition of prepaid wireless provider Leap Wireless International Inc.
T is a Dividend Champion with an impressive 30-yr streak of dividend increases. It pays quarterly dividends in February, May, August and November. Initial yield on cost is 5.47%.
AT&T's stock has underperformed the S&P over the past 10 years and especially since April last year. T has a 5-year Beta averaging about 0.44.
Analysis of T
My fair value estimate of T is $35.50, so I'm buying shares at a discount of about 5%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.
T passes the following of my selection criteria:
- Chowder rule: Dividend yield plus 5-year CAGR exceeds 8% (7.85%)
- 5-year CAGR is at least 10% (2.38%)
- Earnings per share (EPS) percentage payout is less than 40% (54.12%)
- Debt to equity ratio is below 50% (91%)
- P/E to annual EPS growth (PEG) ratio is less than 2 (2.07)
Other ratings for T
Recently, I compiled The Bloggers' Dividend Growth Portfolio from 61 public portfolios in my blogroll. T is the third most popular holding after McDonalds (MCD) and Coca Cola (KO). Moreover, T is the top candidate in the Telecommunication Services sector on my October dashboard of dividend growth stocks.
Last week, T reported first quarter EPS of 63¢ and missed earnings expectations by 1¢. Revenue was $33 billion, up 2.6% year-over-year but missing estimates by $240 million. The resulting sell-off has given me a good opportunity to buy shares and to secure an initial yield on cost of 5.47%.
There are several reasons to like T. The company is well-positioned for growth, with prospects ranging from subscriber additions, expanding LTE coverage, higher smartphone sales, and growing demand for mobile internet. Compared with its industry peers, T's net profit margin is 44% higher at 13.27%, while its TTM P/E is 10.4 compared with the industry average of 16.7, a discount of about 60%. Since 2013, T has returned over $50 billion to shareholders through share buybacks and dividend payments.
Of course, there are downside risks, too. The company is experiencing tough competition from direct competitors such as Verizon (VZ), Sprint (S) and T-Mobile (TMUS). Domestic operations are subject to FCC regulations and licensing. With wireless licenses generally lasting 10 years, the loss of certain licenses could have an adverse effect on T's wireless business. Spectrum crunch is a major issue and most carriers are finding it increasingly difficult to manage mobile data traffic.
Despite missing earnings estimates and guiding lower on revenue, several recent articles nevertheless promote T as a good investment at current levels, for intrinsic value, dividend yield and growth prospects. I'm happy to oblige!
This buy is my second in the Telecommunication Services sector and represents the 35th holding in DivGro.
75 shares of T adds $138.00 of expected dividend income, increasing DivGro's projected annual dividend income to $5,226.63.
Thanks for reading!