Recent Buy

buyThe market has been just a little more volatile lately, which has certainly piqued my interest. The energy sector seems to be generating the bulk of that volatility, but with a weighting much higher than I’d like in that particular sector which has been compounded by aggressive investments there over the last few months, I remain hesitant to the idea of constantly buying energy stocks.

Nonetheless, quite a few companies have reported earnings over the last week or so, which has provided some substantial oscillations, some for better and others for worse.

However, one of my smaller holdings very recently reported results that were perhaps better than expected, and I decided it was time to add to my position. This particular stocks offers a fair valuation, substantial yield, and entrenched position in its market.

I honestly shouldn’t have even made this purchase from a cash flow perspective, as my cash position is a bit precarious right now due to heavy investing and an upcoming tax bill. But I guess you just can’t hold a dividend growth investor down!

I purchased 50 shares of AT&T Inc. (T) on 1/28/15 for $33.04 per share.

Overview

AT&T is a provider of wireline and wireless telecommunication services, as well as broadband and video services.

With roots dating back to the late 1800s, the company has grown into one of the largest telecommunication companies in the world.

They operate in two segments: Wireless (56% of fiscal year 2014 revenue) and Wireline (44%).

The company supports approximately 120 million wireless subscribers and connections.

Fundamentals

AT&T doesn’t sport massive growth like, say, a Silicon Valley startup, but that’s really not what this investment is for. This investment is all about cash flow in the form of big dividends, as I’ll discuss below. That said, AT&T is growing, albeit slowly.

Revenue has increased from $43.862 billion in FY 2005 to $132.447 billion in FY 2014. That’s a compound annual growth rate of 13.06% over that period, which is obviously impressive. However, this should be taken with a large grain of salt since the company that exists today is a result of a combination of assets of SBC Communications and AT&T as well as the later acquisition of Bell South, all of which occurred during this period.

Earnings per share actually decreased from $1.42 to $1.19 over this period, which is a CAGR of -1.94%. Not even close to spectacular or even passable; however, this, too, should be digested properly. First, the company took multiple adjustments this year, including a large non-cash adjustment of ($0.77) during the fourth quarter, largely due to pension costs. The adjusted EPS for FY 2014 was $2.51, which would show much greater growth. Second, telecommunications companies, like utilities and other companies that routinely record large non-cash charges should probably be evaluated through cash flow, where AT&T is still strong – free cash flow is up from just over $7 billion to just under $10 billion over this period.

S&P Capital IQ is anticipating that EPS will grow at a compound annual rate of 5% over the next three years, which seems reasonable to me. The company is guiding for similar expectations.

But where AT&T shines brightest is with its dividend.

The company has increased its dividend for the past 31 consecutive years, which is fantastic.

The dividend growth itself might leave a bit to be desired, as the 10-year dividend growth rate is only 3.9%. And the most recent raises have slowed as a result of AT&T sticking with a static $0.04/share annual increase to its payout.

However, the current yield of 5.69% should not be overlooked in terms of its potential to increase dividend income output of a portfolio and reinvestment potential.

The payout ratio stands at 74.9% of adjusted EPS, which is high. As such, I don’t see why the $0.04 annual increases will change for the better anytime soon. In addition, FCF just barely covered the dividend last year.

AT&T’s balance sheet is leveraged, with over $76 billion in long-term debt. That compares to $10.5 billion in cash and short-term investments. The long-term debt/equity ratio is 0.87 and the interest coverage ratio is 7.48. These numbers are so-so in absolute terms, but actually compare very favorably to the competition.

The company’s profitability metrics also compare extremely well to competitors, with net margin that’s averaged 9.74% over the last five years and return on equity that’s averaged 12.32%.

A lot of speculation has been thrown about in regards to a price war among domestic telecoms, but I’m actually not that concerned. If you look at the numbers among smaller players like Sprint Corp. (S) and T-Mobile US Inc. (TMUS), you see contracting (and razor thin) net margins and negative FCF. That’s the kind of business model that just doesn’t work over a long period of time, so it would seem to me that a rational pricing environment will eventually return, probably sooner rather than later.

The company’s much-watched net adds were up substantially year-over-year, with 1.9 million net adds in wireless. That’s more than twice the result of FY 2013. And that’s partially comprised of 854,000 postpaid net adds. Overall, the price war doesn’t seem to be affecting the company as much as some initially thought it would. This is partly why I decided to add to my stake for the first time since initiating a position in the company back in 2011 for $28.87 per share.

Qualitative Aspects

AT&T has assets that places it in the top tier of telecommunications providers, which drives adds and helps them maintain relationships. They’re constantly improving their network to provide a higher level of service, which cultivates brand equity.

Project VIP is part of this strategy, which is a $14 billion investment in connectivity and reach. This has expanded the company’s 4G LTE network, IP network, fiber deployment, while also increasing the company’s broadband speed. While this spending has come at a cost to FCF, the company’s announced that capital expenditures related to this project have peaked, leading to lower capex guidance for FY 2015. Reading between the lines, that should mean an improvement in FCF and better dividend coverage.

And the company is doing more than just investing in quality. They’re also acquiring additional businesses which fit within their core competencies. AT&T closed the acquisition of Leap Wireless in early 2014, which gives them an increased presence in the prepaid market. And just recently, they announced that they closed the acquisition of Mexican wireless provider lusacell. That gives them access to 9.2 million subscribers and a network that covers approximately 70 percent of Mexico’s population. Finally, just two days ago, the company declared that they will acquire Nextel Mexico. You can see a trend here with the buildout in Latin America.

Of course, there’s also the pending acquisition of DIRECTV (DTV), which would immediately scale AT&T’s business in that market. DTV is Latin America’s is a leading pay TV provider in Latin America as well as the US, and there’s still a lot of growth potential. This move will also give them access to media delivery in a big and immediate way, if the acquisition is approved. The company expects a modest drop in EPS growth in FY 2015, but should be accretive in future years. They’re anticipating substantial cost synergies, which should exceed $1.6 billion on an annual run rate by year three after closing. This could completely change the face of the company and their growth potential, in my opinion. It also gives them a lot of flexibility in terms of bundling and increasing revenue per customer.

Data consumption isn’t going anywhere. Though the penetration rate is high and the low-hanging fruit has been picked – smartphones are 83 percent of the postpaid phone base – the business of providing data to data-hungry consumers is a cash cow business with highly visible recurring revenue. There might not be a lot of organic domestic growth left, but the aforementioned moves should propel the company’s growth at least in line with guidance in the low single digits for the foreseeable future, with some potential additional upside.

I personally like investing in companies that provide products and/or services that are ubiquitous. And I don’t know of many products more ubiquitous than phones (and increasingly smartphones). Communication is becoming more data driven than ever before, meaning network capacity, reach, service, and reliability are differentiating features that should allow entrenched firms like AT&T to continue profiting at a high level.

Risks

The telecommunications business is highly competitive, as shown by recent price wars. In addition, capital expenditures can remain elevated for years in order to expand network reach and capacity. For instance, AT&T’s capital expenditures in FY 2014 was over $21 billion, though the company is guiding for $18 billion in FY 2015. High capital expenditures limits the possible amount of cash flow that can be returned to shareholders.

In addition, technological obsolescence is always a risk in this industry. That obsolescence is leading to falling subscribers in wireline voice connections, which is a risk since the company still generates a lot of revenue from the wireline segment. There is also regulatory risks. Finally, there are risks relating to acquisitions, especially sizable ones like the aforementioned announced acquisition of DTV.

Valuation

The stock is offered for a P/E ratio of 13.61, using adjusted FY 2014 EPS. Their five-year average is 21.3, but numerous adjustments cloud the accuracy and reliability of this metric.

I valued shares using a dividend discount model analysis with an 8% discount rate and a 2.5% long-term growth rate. I’ve decided to start using an 8% discount rate when valuing stocks with a yield above 5% to account for the time value of money. The growth rate is in line with guidance and recent dividend growth, so I think it’s fairly accurate for the foreseeable future. The DDM analysis gives me a fair value of $35.04, indicating that shares are roughly fairly valued here.

Conclusion

AT&T has surprisingly been able to manage its cash flow at an impressive level by targeting multiple uses concurrently: returning substantial cash to shareholders in the form of a big dividend ($9.6 billion in FY 2014), buying back shares, investing in its network, and maintaining healthy margins.

Phones are ubiquitous and that’s unlikely to change any time soon. As communication becomes increasingly based around data and mobile, AT&T benefits through higher revenue opportunities even if some of their wireline business is cannibalized. The company sports an approximate 34% of the market share in wireless (along with major competitor, Verizon Communications Inc. (VZ)) and that huge share of the market brings in steady cash flow while the company diversifies its business offerings and improves its network to maintain that share. I see no reason why the company will not be able to continue paying out its sizable dividend for the foreseeable future. Although, I also don’t anticipate the dividend will grow much or any faster in the near future than it has in the past.

I personally agree with their move into Latin America and more pay TV. This further diversifies the business in a large way in terms of the services they offer as well as their geographical revenue mix.

This purchase adds $94.00 to my annual dividend income, based on the current $0.47 quarterly dividend per share.

I’m going to include current analyst valuation opinions below, as I use these to concentrate my reasonable valuation estimate:

Morningstar rates T as a 3/5 star value, with a fair value estimate of $34.00.

S&P Capital IQ rates T as a 4/5 star buy, with a fair value calculation of $33.00.

I’ll update my Freedom Fund in early February to reflect this recent purchase.

Full Disclosure: Long T and VZ.

What do you think of T here? Like the big dividend? Think it’s sustainable? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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134 Comments

  1. Good move, Jason. AT&T is a great company and those juicy dividend yields are enticing. As the latest quarter showed, AT&T can still eke out growth. I have a position in AT&T and would love to add more. Tempting to add at these levels.
    One other risk is the rise in interest rate, if you care about the actual price of the stock. High dividend companies like telecoms will probably see a bit of a decline if and when the interest rates rise. I dont care so much about the price but rather on the income a company produces. But still..thought I should put it out there.

    Congrats on adding $94 of dividend income to your portfolio.

    cheers
    R2R

  2. Great buy for AT&T. I almost pulled the trigger too today. I look forward to buying this very soon. I’m also glad that you lay out each stock’s history and why you feel it’s important to your future. It makes my decisions a lot easier.

    Thanks!

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  4. R2R,

    I actually don’t consider rising rates a risk in that regard. Would love to maybe add 50 more shares at a much cheaper price. Rising rates are more of a macroeconomic risk for companies in general, especially for those with highly leveraged balance sheets. But I generally try to outline risks that are more specific to the company in question in these posts.

    The last quarter/FY was actually really solid. I was pleasantly surprised. I love to catch great companies suffering through some temporary setbacks, but T’s bouncing along pretty well here and the yield is healthy. Probably my last purchase of AT&T shares for a while, but I think this is a fair price to pay.

    Thanks for dropping by!

    Cheers.

  5. eperkins31,

    Glad you like the analysis. AT&T isn’t going to produce blockbuster gains/growth, but I’ll gladly take the big dividend and reinvest it. 🙂

    Hope you found some value here!

    Take care.

  6. I’ve been postponing adding to my T position because of concerns the aggressiveness of T-mobile will hurt both market share and margins. Now that some time has passed, it looks like T is gaining greater share of the customer with Uverse which is more than offsetting any mobile losses. I think I’ll put them back on the short list for accumulation. Great pick!

  7. Nice purchase DM. I recently just bought VZ and it was honestly a toss up between them and T. I find both to be solid value plays right now. More and more people are using up data and these 2 companies stand to make fist fulls of money for many years to come.

    I’ve been on quite a buying streak recently myself and am about to write up another recent buy post after this comment. Market up, market down, timing the market is a fools game If you can pick the right times thats great but with a long runway, I feel that putting money to work as quickly as possible is the best thing I can do.

    Have a nice night!

  8. Keith,

    Right. I was in the same boat. I thought about adding to my exposure here a while back, but held back because of the aggressive pricing. But it seems to be harming the small players more than the big players, which is generally how that works out. Luckily, T’s price has stayed pretty range bound and this seems like a great time to add. 2015 could be a pretty transformational year if everything goes right for them.

    Thanks for dropping by.

    Cheers!

  9. ADD,

    Agreed. Mobile and data isn’t going anywhere. Technology changes fast, so it’s tough to say exactly where these companies will be 20 or 30 years from now, but I do like the diversification going on there.

    Nice job staying busy there. That’s what it’s all about. I’ve never been one to time the market. If the market drops by 20% tomorrow, that’s just a better opportunity to buy more shares for the same amount of capital.

    Keep up the great work. Excited to read about your latest purchase. 🙂

    Take care.

  10. Hi DM,
    As someone who, similar to you, buys hoping never to sell, it feels sacrilegious to disagree with you. The big telecoms T (and especially VZ) don’t interest me at all.

    I do think think the DirecTV purchase was smart. That business creates a lot of strong recurring revenue and scales nicely. But I think AT&T’s bread and butter of providing cell/data service could be at risk. Google, Facebook, and a number of other big techs are actively trying to expand the availability wifi. While obviously not around the corner, American consumers may not be too far away from not needing cellular technology to function.

    I think T will continue to provide a decent income over the next 5-10 years, but with almost no dividend growth expected, the upside seems capped. Long term, I think these companies will be stuck with huge debt loads and obsolete infrastructure.

    Appreciate the work you do and I hope all your investments thrive!

    Indecently, I purchased more GE today. Not quite the same current income as T, but I’m much more confident in the business, even if oil prices stay low. I realize it’s already a big position for you, now it is for me.

  11. Great pick Jason
    Added to my position in T last week.
    TD bank also looking attractive as well at these levels
    Cheers
    Tom

  12. Good buy. The 5%+ yield is great, but the 2% dividend growth rate(for the last 6 years) isn’t too appealing. Hopefully some decent dividend increases come around.

  13. I am long T. Good buy here. It is still trading above my avg cost, but I will add if it drop few percentages from here.

  14. Jason, a good pickup here as I’ve been looking at adding VZ, T, or both to gain some exposure to the Telecom sector.

    I’m curious as to your reasons why you favor T over VZ? I think exposure to both long-term is good, but given your VZ position was ultimately provided by VOD, just curious where you stood.

  15. Lol just yesterday I was lookin at T because I seen the yield was like 5.6% and I thought it was a typo or an error. I logged into my broker site and low and behold 5.6%. Its a very stable business these telecoms and at this yield its a no brainer for this dividend champ.

  16. Hey Jason,

    I’m currently very slowly reading the dense tomĂ© that is The Intelligent Investor. In your valuations, you often refer to P/E. Do you consider book value much and P/B when considering a buy?
    Thanks ahead of time for the input!

    -Josh

  17. Hi Jason,
    Thanks for your analysis of T. It is one of my core holdings and I too added to my position today. I am impressed with their management and look forward to the additional dividends into my account.

  18. Nice buy Jason. I’ve been actively buying last couple of months with several buys, including VZ. I’ve considered buying T over some time and frankly it is toss up between T and VZ, though, I think that later one has higher growth due to well received broadband network. I consider them more like utilities with small prospects of growth.

    Best,
    PIM

  19. Chris,

    Nothing wrong with disagreeing. There are a lot of stocks out there. 🙂

    Technological obsolescence is a risk, no doubt about it. But I guess I just don’t know what that looks like. Is Google and Facebook out to provide Wi-Fi out of the kindness of their hearts? Who builds that infrastructure? How do they profit? I get their business model is based on the internet, but penetration is already high here in the US. Just doesn’t really seem to make a lot of sense to me. The infrastructure and costs have to be paid by someone.

    At any rate, I do see it as a risk, which is why I’m not real keen on the idea of making any telecom provider a major position. That said, I don’t see why T couldn’t provide 8% annualized total returns moving forward, with the bulk of that return in the form of a dividend. I’d be okay with that.

    I think you made a solid move with GE there, however. Great company.

    Best regards!

  20. Tom,

    Nice. Glad to be on the same page. 🙂

    Agreed that some of the big Canadian banks look pretty good here. Let’s hope they remain down here for a while!

    Cheers.

  21. Joel,

    Right. I think T fits into a portfolio that has a nice mix of current yield and growth.

    But a big dividend can make up for a lack of growth. Assuming 2.5% dividend growth and dividend reinvestment, T will pay out an aggregate of over $11,000 in dividends with an initial buy of 50 shares today. That’s assuming the dividend isn’t cut, but just 2.5% growth indefinitely. Seems like there’s some potential upside there.

    Meanwhile, KO would only pay out $10,500 in total dividends assuming an investment of 39 shares (similar amount invested) and 8% growth over 30 shares. And that rate may actually be a bit aggressive.

    So it takes a while for a lower yielding stock to catch up. I try to have a healthy mix of them all, because you don’t know what’s going to happen over the next 30 years.

    Cheers!

  22. AJ,

    I think it’s roughly fairly priced. No steal by any stretch of the imagination, but the next year or so looks pretty exciting with capex coming down and some potential big acquisitions coming online.

    Happy to be a fellow shareholder! 🙂

    Best wishes.

  23. W2R,

    I think both T and VZ offer something to like. They have a very similar market share in wireless (VZ has a few more million subscribers, last I checked) and both have great reputations. I’d say VZ has better media offerings as of right now, but that could change with the DTV acquisition (if approved).

    The major difference between them, in my view, is their balance sheets. VZ has over $110 billion in long-term debt. That’s well over half their market cap. And both companies have similar cash positions. That debt will almost certainly constrain whatever growth advantages VZ might have (if they have any) over T, in my view. That’s just a lot of debt for a company that isn’t a whole lot bigger than T. They probably overpaid for the remaining share of VZW.

    I wouldn’t mind more VZ at some point in time perhaps, but I think that debt will limit their potential.

    Hope that helps!

    Best regards.

  24. A-G,

    I know you love that yield. 🙂

    T is a fairly solid company at this price. It’s not going to knock anyone’s socks off or anything, but it’s a stable cash cow for the portfolio, which allows me plenty of income to allocate elsewhere.

    You guys have some solid telecoms up there as well with TU and BCE. BCE has a pretty nice yield, too.

    Thanks for dropping by.

    Cheers!

  25. Josh,

    I don’t really look at book values all that much. From what I understand, Graham was an ultra conservative investor who always wanted to know he could get most (or all) of his money back in case a company was liquidated. So that’s why you want to know what factories, machinery, and the like can be sold for. The companies I talk about and invest in really don’t fail all that often. And leverage can cloud the real value of a business.

    Ultimately, any business is worth all the cash flow it can possibly generate from here to eternity, discounted back to today. A company can be priced below book, but if it’s not producing any cash flow, why would I want to invest? So it can be liquidated and I can profit? I love that book and I love Graham, but I’m not sure if that’s the way you want to look at investing. And obviously Buffett himself changed his view on that down the road after meeting Munger and focusing on high-quality businesses that can produce ample cash flow.

    Hope that helps. 🙂

    Best wishes.

  26. Paul,

    No problem. Hope you found some value in it. 🙂

    I was also actually impressed with the last quarter and fiscal year, considering the aggressive moves by smaller competition. They’ve been holding their own, which gave me the confidence to add some here more than three years after I initiated my position. Seems to make sense right now.

    Thanks for dropping by.

    Take care!

  27. PIM,

    Agreed. These companies operate more like utilities. Somewhat limited growth with bigger dividends. The big difference between them and utilities right now is valuation and yield. Whereas you were able to get 4% to 5% yields with major utilities pretty routinely before, they’ve all been bid up. So the telecoms make more sense right now, as T’s yield isn’t all that far away from what it was a few years back.

    I think VZ appears solid, though I don’t think it’s going to grow a whole lot faster than T over the long haul due to penetration and limited opportunities. Both are cash cows, but I think VZ’s massive debt is going to hold them back a bit.

    Cheers!

  28. Hey Jason,

    I reinvested most of my GE dividend in T today. I bought a few shares of GE, but mostly T. Now my T share count in a lot higher than it was a few months back, but the dividend is quite high %wise and will contribute to the total income and new purchases. Good luck.

    Keep cranking,

    Robert the DividendDreamer

  29. I actually have my servicell through Tmobile. However, I know that T is and has been a rock solid investment over many decades. My father worked for the Bell System for over 35 years before the breakup. His opinion was that the stock was a no brainer and never hesitated to purchase shares. Plus that company paid his pension and his salary for almost 65 years- he was retired for about 30 years before he died. In all those years, T and the Bell System never let him or our family down. I do not see it letting us down anytime in the near future either. Good luck.

    Keep cranking,

    Robert the DividendDreamer

  30. I like Telecom companies at the moment and have a couple on my radar that I keep watch of. And in general they seem to be paying nice yields and are adapting to emerging technologies (at least enough to keep them going) within their fields. I hold some At&T in my simulation US account and have had no problems with it so far 🙂

  31. Hi Jason,

    Great purchase. T is one of the 5 stocks I started this DGI journey with.
    I’m still very pleased with that decision. My price of purchase was $35.12, which was a bargain at the time.
    You got in at a very nice price.

    Thanks for your analysis.

    Best wishes,
    DfS

  32. Hey DM,
    I was thinking in buying AT&T from the EU (Spain). I’m need something that yields me $ (and not the ARCP style) now that it seems like we are going to the parity. Thanks for your post, now I know the company a little better.
    Regards,

  33. I’m not usually a fan of the telecoms, but I actually think T presents a good value here. I am not thrilled with the low DGR, but the very high dividend makes up for that. Heck, although I said I wouldn’t, I may even pick up a small lot myself in the next few months. Excellent choice for a stage 1 stock.

  34. Congratulations on the purchase. I recently purchased 25 shares of T not that long ago at $32.30. Looking forward to the future dividends.

  35. Hi Jason,

    Great buy here!

    T is one of my largest holdings and while they are not a “growth” player, their nice dividends just keep on coming!

    Ray

  36. Great buy Jason. I think the fair value is around $35 too, so you got it cheap, well done! I’m a fan of having a few of these more old school, solid dividend payers as a core holding, before adding in a few more companies that can really grow the dividend. I’m near the beginning of my dividend journey, so having a few high yielders to start off with, such as T, is the kind of plan I’m going with right now.

    Cheers

  37. Looking at book values is more of a total return (value investing) concept than dividend growth/income investing.

    Over time, it’s a very strong strategy as there are numerous studies which have shown that over time, and with enough bets, you can outperform on total return.

    The issue is that some of these positions take years to pay off, and you have to make a lot of them. Quite successful, but very difficult given “book value” is much more complicated than calculating net assets from a balance sheet. There are numerous measures of book value, depending on a company’s position. TO name a few:

    – liquidation value.. in the event of bankruptcy
    – takeover value.. value to another party is judged to be greater than by itself

  38. Rising rates (and hopefully higher inflation) should help both T and VZ due to their leveraged nature.

    VZ especially has quite a bit of relatively low rate debt now, so I see this as a tailwind rather than a headwind… on a 5-10 yr horizon. This assumes no significant changes in competitive environment, which is anyone’s guess.

    If they can grow gross profits (rev – cost of service) in line with inflation, FCF should also grow and help accelerate debt payoff (unlikely) or boost payouts (more likely once debt returns to more in line with industry). At least, I hope… 🙂

  39. Great buy. T was one of my first purchases in 2012, and dividends have paid back close to 20% of my initial investment plus a small capital gain (which I can’t do much with).

    I did initiate recently into VZ. The yield was lower, but the marginal benefit of adding to T was lower than adding to VZ and owning a different piece of the same market. If I owned none, I probably would have gone with T.

    Fortunately, for those of us still accumulating, we can engineer our own dividend growth through reinvesting like you mentioned. I don’t particularly care of the value of my T shares appreciates or if the dividend grows substantially, since I can create portfolio income growth through reinvesting.

    At this level, each year that passes reduces my risk since we continuously get back so much of our capital and get to reinvest elsewhere.

    It’s awesome to think my 4k in dividends last year “provided” for my new positions in SBUX and WFM. Those will grow on their own and allow even more growth later on.

    Looking forward to the madness!

  40. Hi Jason,

    I bought AT&T last year and I like the share because of the high dividend yield. I think this is a solid investment where you get good dividends every quarter to reinvest. One interesting statement was before with Facebook and Google that internet telecommunication will appear instead of cellphones. This might be but I am very positive with network provider like Verizon, Telekom or AT&T because we will get a lot of future traffic with the upcoming IoT. Cisco and Intel are very interesting for this as well. And for IoT all the providers are really in a pole position. You can´t do anything wrong with it. I surely will add this year more shares.

  41. DM,

    Are you still good on NOV long term? I know you added to your position around $60, and it seems to have taken a big hit recently. I initiated at $58 and am considering adding but am new to the company. Also, while you already have a lot in the energy sector, I understand part of why you’re not putting so much into oil right now. For someone just starting out, would you suggest them getting their bargains in the oil/energy sectors? Just thought you’d have a good opinion on that matter…thanks!

  42. do you see them raising dividend anytime soon? I’m long VZ, but thinking of adding a few share of T after reading your analysis. Thanks!

  43. I like the buy here Jason, as you know, I recently purchased VZ and T is another one that is at extremely attractive valuations currently. The growth may be lower, but the yield sure adds to the gains. The acquisition of DirectTV only makes things sweeter doe to larger subscriber base.

    Best wishes.

  44. Robert,

    Seems like a prudent move there. That diversifies your portfolio and also adds a nice boost to your dividend income. Those GE dividends can build another portfolio all by themselves, one quarter at a time. 🙂

    Thanks for dropping by.

    Cheers!

  45. DW,

    The big yield there is definitely appealing. And I like the moves they’re making into Latin America. Plus, the addition of DTV will add a premium service to their lineup and also give them access to a lot of subscribers. That’s a ton of marketing potential. So we’ll see. I’d be happy with continued 2% to 3% dividend growth for the foreseeable future.

    Take care!

  46. DFS,

    Another long-time shareholder. 🙂

    I purchased T quite a while ago as well, more than three years ago now. Seems to make sense here. We’ll see how it goes!

    Thanks for stopping in.

    Best regards.

  47. Elvis,

    I’m not sure of the tax implications for you, but the yield is appealing here. The reduction of capex next year and the addition of some acquisitions should improve FCF, which makes the dividend more sustainable. All in all, I see no reason why the dividend won’t continue growing at a modest pace. 🙂

    Best wishes!

  48. I’m a big fan of AT&T and own it in my IRA, basically treating it as a cash booster to allow greater purchases than the typical $5,500 annual contribution. Think if you bought all T for three years when you started an IRA. After year three (assuming all current prices and dividends reinvested annually for simplicity) you’d have the following:

    Year one – 166 shares of T, plus 9 shares from dividends
    Year two – 341 shares of T, plus 19 more shares from dividends
    Year three – 526 shares of T, plus 30 more shares from dividends

    You now have 555 shares of a cash machine throwing off over $1,000 in cash annually, boosting your annual IRA investment to $6,500 for the rest of your days. At this point, you can roll it back in to get huge yield on cost over time, or, use that cash to start new positions.

    Not everyone has this investment style (you are definitely not beating the averages for absolute return) and I’m not suggesting this for anyone, but it’s a great real-world example of simple blue chip investing for long-term cash flow.

  49. Ray,

    Glad to be a fellow shareholder! 🙂

    You’re absolutely right. This is no growth play. But those sizable dividends make up for a lot of that. The dividends are real cash money, which can buy real additional shares. Capital gains come and go.

    Hope all is well!

    Best wishes.

  50. DD,

    I hear you. I don’t want to go too crazy with telecoms myself, which is why it’s been some time since I bought any more T. There’s always the chance that some new technology comes out which makes some of their infrastructure obsolete, much like what happened with wireline. Of course, you hope (as a shareholder) that the incumbents jump on whatever new technology that may be, but it’s a risk. In the meanwhile, it’s a cash cow.

    Best regards.

  51. Ravi,

    Yeah, I’m not sure about that. Depends on how easily costs can get passed on. Inflation also means infrastructure is more expensive to build and maintain. That line of thought works better with consumer companies, in my view, where you have some pricing power. This is a highly competitive industry and I’m not sure how much higher some of the costs can go, especially over a short period of time. I would think I’d prefer rates stay low for a company like T. Not for the stock, but for the business.

    Cheers!

  52. Ravi,

    Exactly. There may be some risk here for some technological obsolescence that we can’t foresee right now, but the big dividend reduces that risk rather dramatically. Every dividend received is “less money on the table”. So the risk is disappearing every quarter. 🙂

    Great job rolling those dividends into SBUX and WFM. I just keep missing out on SBUX, much to my chagrin. I’m sure I’m going to end up regretting that.

    Best wishes.

  53. DM,

    Congrats on the buy here. I have T as well, and I think it is a nice level 1 asset to have (stealing your stage 1 – 2 – 3 idea there). That income boost should help you achieve your goal this year and make a few more investments. I hope the purchase of D-TV works out, can only boost their overall position.

    – Gremlin

  54. olli0816,

    I’ve heard a lot about this, but it takes incredible resources and infrastructure to roll something like that out. So there’s a lot of money and a lot of time. It’s not going to happen overnight. Where that puts the telecom companies is difficult to say, but every investment has a drawback of some kind. Phones are ubiquitous. That’s not going to change. The technology phones use may (and probably will) change over time, but the telecommunication companies already have some of that infrastructure in place as well. And the diversification into media certainly helps that. There’s a good chance that the T of 2014 and the T of 2034 will be very different companies.

    Best wishes!

  55. FreeIn15,

    Glad to be a fellow shareholder! 🙂

    Those dividends will surely help you toward your end goal of FI in 15 years.

    Thanks for dropping by.

    Take care.

  56. Tabula,

    Yeah, most energy companies are down quite a bit over the last six months. Even the big players have been volatile – CVX is down some 22% over the last six months.

    Energy is a very volatile sector. Oil oscillates wildly, even over short periods of time. So by investing there, you just have to make sure you’re okay with that. If the idea of seeing a stock drop by 30% in a six month period is frightening to you, then I wouldn’t recommend going very heavy there. I think there’s some value here and there in energy (like NOV), but I’d also caution that many of these stocks will likely remain volatile for a while yet. Cheaper oil has to work its way through the system, which you’ll see when earnings reports come out throughout the year. Just something to be mindful of. If you’re focusing on value and averaging down, you should be okay.

    Hope that helps!

    Cheers.

  57. I’m not sure I agree that we’ll see any kind of price stabilization in the wireless wars. The heavy influx of MVNO providers (and now even Google is entering the space) means that competition for ears will only get tougher. Also, the other, real, race to zero going on in semi-conductors mean that the cost of the transference of data (which is making up more and more of the wireless spectrum) is getting lower. Consumers are winners, wireless providers are losers.

    However, I still agree that AT&T is a buy, but only because of their invaluable wired infrastructure. Broadband is becoming more and more important as the world (devices) becomes more connected. AT&T is well situated as a internet-of-things conduit.

    Thanks for the post.

    Eric

  58. Vivianne,

    T just raised its dividend about a month ago, for the 31st consecutive year. So things look good there. The next dividend raise will likely come this December, as it usually does.

    Best regards!

  59. DV,

    Thanks!

    Yeah, it looks like an okay buy here. Nothing real exciting and I don’t expect outsized growth. But if that large dividend keeps hitting my account and the company is able to continue raising it modestly, then I’m a pretty happy camper here. Wouldn’t want the bulk of my portfolio here, but I’m okay with small position. Overall, I’d prefer telecom at a 2.5% weighting over the long haul, so at some point I’ll probably just stop buying these stocks. But it’s nice to load up early and start the heavy compounding process with those sizable dividends. Then it’s more concentrating on Stage 2 and Stage 3 stocks.

    Thanks for dropping in!

    Take care.

  60. I’m an AT&T shareholder as well and I continue to like AT&T. Really like how they’re trying to diversify their offerings. I may add to our AT&T and Verizon positions in the near future. As we become more dependent on cellphones, carriers like AT&T and Verizon will continue bringing in the revenue.

  61. Joe,

    Definitely. That’s a great example there of the power of dividend reinvestment. Dividend growth and reinvestment is at the heart of this strategy.

    I actually wrote an article not too long ago on the insane power of reinvested dividends when it comes to a high-yielder like T:

    http://www.wyattresearch.com/article/dividend-profit-alert/

    Not sure about beating the averages, but sitting on more cash flow than you’ll ever need means you probably don’t care either way.

    Cheers!

  62. DD,

    Sounds like a prudent move to me. I wouldn’t want to go real heavy on T here or at any other time, but a little exposure to high yield goes a long way. 🙂

    Best wishes.

  63. Gremlin,

    This is a prototypical Stage 1 stock. 🙂

    I’m actually surprisingly excited about T here. Some of the moves they’re making make a lot of sense to me. I like the aggressive moves into Latin America and the expansion into more pay TV. DTV puts them on better footing in regards to VZ while also giving them access to a lot of customers. Seems like a win-win to me.

    We’ll see how it goes. But I’m glad I’m purchasing this one early in the year. Still three dividend payments to go, which helps me with my short-term and long-term goals.

    Thanks for dropping by!

    Best regards.

  64. Eric,

    Well, the MVNOs still have to rely on a host network. The big players were hesitant to the idea of MVNOs for quite a while there. Eventually, the writing was on the wall, so may as well collect some revenue from assets already in place. Makes sense to me. T hosts quite a few of the bigger MVNOs out there.

    The infrastructure, in my view, is still where it’s at. Internet connectivity doesn’t automagically occur. IoT is coming at some point, but there needs to be a backbone of infrastructure there. We’ll see how it goes, but I think T (and its dividend) is safe for the foreseeable future.

    Thanks for stopping by!

    Best regards.

  65. Tawcan,

    Agreed. I also like the diversification – both geographically and in terms of revenue mix. The services they offer are ubiquitous, which goes a long way toward creating a business model that’s hard to usurp. Even their wireline business, while declining, still brings in a lot of revenue via home telephone service. So even if a new technology were to arrive tomorrow that somehow supplants wireless phones, it wouldn’t be an overnight switch. Just doesn’t work like that.

    Glad to be a fellow shareholder. 🙂

    Best wishes.

  66. DM,

    Yeah I have been seeing all the turbulence- at 24, I plan to sit on all my positions for quite some time. I see you mention quite a bit how there aren’t a lot of great deals out there with the current market, and wonder if I plan to sit on oil stocks for the next 40 years if this is the time to be going heavy. I just purchased 45 shares of T at $32.58, as I was like the path that the company is taking as well. My gut is that we’ll see many more cycles of oil in the next few decades and hope I’m catching one of the low ends…I’m okay with the volatility, as I don’t plan on needing the capital in the immediate future…

    Thanks!

  67. Nice purchase, Jason. I finally got out of my two year expensive AT&T single phone plan, and now am on their Cricket Wireless service month to month where mine, my fiance and her fathers plan cost less than I was paying just for myself. I learned my lesson with that first plan, and will just buy a phone upfront from now on with no contract. The service has been great so far, and I’m glad I’m still on an AT&T owned company as a fellow shareholder. Eventually it’d be nice to have the dividend pay the entire phone bill 🙂

    All my best,
    Ryan

  68. Tabula,

    I think PM is a great buy here, but I already have all I’ll ever need with 115 shares. It’s unlikely I’ll ever buy any more PM shares. My portfolio would have to double before its weighting was more appropriate, but over time the shares will naturally appreciate and counterbalance that. I expect PM to right-size itself over time, and 115 shares (before any splits) will probably be enough for that to occur on a long-term basis.

    If I didn’t already have a large position, I would have bought here.

    Best wishes!

  69. Really surprised to see you buying T here. The long term growth, as everybody and their mom is already saying, is pretty lame, and though the yield is high and the consistency of payments is nothing in question, I like seeing you always diversifying, and always finding new and exciting opportunities. It almost seems like you went out of character investing further into a stock with such lackluster growth.

    I expected you to average down on NOV or RDS.B.. Anywho, best of luck!

  70. Well T will certainly give a great current yield putting that fresh capital to work for you in a big way. Not to much expected in terms of raises but you already know that. Still not a bad pick though not high on my list for my long term dividend portfolio. I know T and VZ are two names that are in many dividend portfolios. I didn’t expect this second buy in January. Thought we’d be waiting till Feb. for the next buy. But I guess it can be thought seeing cash lay around earning nothing. Thanks for sharing.

  71. Ryan,

    Nice move there. As you know, I’m a fellow Cricket user. I’d hate to use a competitor, so I’m glad that T offers a very attractive MVNO service like that. 🙂

    I’m confident your T dividends will one day pay for your entire phone bill. I think my annual T dividends are now covering something like 7 months’ cell bills. It’s great to know we’re contributing a little revenue their way which comes back to us.

    Thanks for the support!

    Best wishes.

  72. oliver,

    I may buy more oil stocks at some point in the near future, but if you’ve been reading the blog at all (not sure you have), you’d know I’ve been leery of adding to my exposure there.

    T’s growth is more than fine to produce 8%+ long-term total returns. That’s in line with the long-term average of the stock market, but you’re receiving the bulk of them in the form of a dividend. I see nothing wrong with that. I like growth as well, but that has to be balanced with income today.

    As I mentioned in a prior comment, it would take a stock like KO more than 30 years to pay more in aggregate dividend income, even if T continues to grow its payout at only a 2.5% rate. I’d encourage you to read up on the power of dividend reinvestment.

    Take care.

  73. finanzasmania,

    I prefer T right now due to the much healthier balance sheet. I think VZ has some attractive merits to it as well, but their debt makes me a little uncomfortable right now. I’m anxious to see them improve that situation over the next few years.

    Cheers!

  74. DivHut,

    I also wasn’t expecting to pull any more triggers this month. I honestly shouldn’t have here, as my cash position is quite low and I know I have a tax bill coming up. But I’m always creative. 🙂

    T won’t produce the kind of growth that’ll knock anyone’s socks off, but reinvested dividends should produce very attractive long-term total returns. And it would take many other stocks out there decades upon decades to catch up in terms of aggregate dividends paid. So that’s always something to consider. But I like balancing them out. I’ve got stocks like DIS and V to produce the growth and stocks like T to pay me now. I’m always interested in a healthy mix across the spectrum.

    Thanks for dropping by!

    Cheers.

  75. DM,
    ATT is one of my very first DG stock, I probably will add few more shares before year end if the price remains at this level or maybe lower. I like the acquisitions with DTV and lately with Nextel Mexico. I felt that VZ left them out in the last few year(market share) but this year I can see ATT taking a nice 2015 head start. Speaking of VZ, I initiated some shares today, I know you own both with the VOD spinoff if I can remember (correct me if I’m wrong). Glad to be fellow shareholder here.
    FFF

  76. Interesting buy. I absolutely agree they have a great dividend payout and that’s one of the factors that makes ATT attractive as an investment— specially considering the long term goals of your personal portfolio. I used to own Verizon and sold it. I have not looked back. One of the reasons is that I feel the telecommunications industry is facing so much competition that sometimes I wonder how much longer they will be able to keep up. Looking at companies like Google which are planning to offer free calling services and already offer free phone numbers to people, as well as the fierce competition among all the companies in the industry makes me a little anxious.

    Just recently, companies like T-Mobile offered to cut bills from new customers in half simply to gain their business and increase their market share. I felt that was pretty intense! talk about battle of telecommunications! With that said, I still think AT&T can be considered a leader within its industry. One interesting fact I found on your post is that 44% of their revenue still comes from wirelines. I can only deduct that revenue is coming from businesses, not individuals, whom are aggressively changing to wireless.

  77. Mabel,

    I know exactly what you mean. I was also really concerned about the price wars and how that was going to impact net adds and margins. But this past quarter showed that it isn’t impacting the company as much as was thought. And this has been going on for a while. So if that was going to substantially impact T’s bottom line, it would have showed up. And like I mentioned in the article, that kind of pricing can’t stick around for too long due to the smaller players’ margins and negative FCF.

    Keep in mind as well that T’s wireline business is more than telephone service. That also includes their broadband and television offerings.

    Cheers!

  78. FFF,

    I agree. I think the moves they’re making make a lot of sense here. It diversifies the revenue mix both in terms of service offerings and geography. It’s particularly timely considering that the domestic market is fairly saturated right now.

    Great job there with the VZ purchase. I own my shares through the VOD transaction, but I do remain concerned about their elevated debt.

    I’m also glad to be a fellow shareholder here. I think we’ll be collecting sizable dividends for years to come. 🙂

    Best wishes.

  79. DM,

    I love this purchase. T is my largest holding and looks really good near the 52 week low. I added some shares through Sharebuilder myself this week. 5 1/2% plus 2 1/2% growth should be right in that 1st stage wheelhouse.

  80. Rick,

    Dividend growth stocks typically outperform both the market and stocks that don’t pay/grow dividends over long periods of time. Picking out a couple of superstars doesn’t invalidate an entire strategy. Furthermore, you’d have to have the foreknowledge to pick those superstars out and avoid all the growth stocks that underperformed – an ability that most mere mortals lack. It’s easy to pick a winner out 10 years after the fact.

    Furthermore, I didn’t have $184,000 back at the beginning of early 2010. So I wouldn’t be super rich today. I’d have a lot larger portfolio if I would have put everything into Tesla all the way through, but, again, I would have had to know Tesla was going to do what it did. That would have been incredibly risky to do. Obviously, my crystal ball is always broken.

    Lastly, you’d have to sell shares to generate the income you’d need. So you have to hope that the growth stock(s) you own keeps growing so that you don’t eventually run out of money. Tesla, for instance, isn’t profitable. Will they turn a profit one day? Will investors continue to give them the benefit of the doubt and assign this sky high price to shares? Will the stock crater? These are questions I’d rather not worry about.

    I’m not here to talk anyone into or out of anything. I’m simply showing how someone with a modest income can attain financial independence from basically zero in a little over a decade – and stay financially independent without worry about the stock market oscillations from day to day. Doesn’t take otherworldly stock picking powers to do that.

    Take care.

  81. Jason,
    a small businessman that is on my office floor is moving to new offices and he told me they are switching from AT&T to VOIP for phone and saving thousands of dollars a year- only paying $25.00 a line for unlimited use. He informs me that bigger companies are doing the same thing. Do you have any thoughts/concerns?

  82. Great purchase. The market is fairly tough for good deals right now. I have been adding to a few positions at around what I think is fair value. T being one of them that I added a few weeks ago.

    I think of telecoms as more of Utilities and look more for stability than great gains from them. I don’t know how long Sprint/T-mobile will be able to keep up the aggressive pricing that they have been. However, T’s attempts to diversify into Mexico and DirectTV are good IMO.

    Google trying to be another wireless carrier is also interesting, but aside from search Google doesn’t really seem to hit a home run with anything else they do.

    Take care!

  83. MDP,

    Thanks!

    Agreed. This is a prototypical Stage 1 stock. And I see nothing wrong with 8% total returns. That’s below my usual hurdle rate, but I’m willing to sacrifice a bit there for some bird in the hand. 🙂

    Glad to be a fellow shareholder (though, a smaller one).

    Best regards!

  84. scott,

    Well, those kinds of anecdotes used to concern me. But I specifically added to T here because those anecdotes don’t seem to be showing up on the bottom line. The numbers don’t lie.

    It would be like not investing in Coca-Cola because my neighbors switched to drinking tap water.

    That said, VoIP requires infrastructure as well. So I’m not sure who provides that, but that’s a revenue source as well. And I can imagine their bandwidth needs are now elevated. We’ll see how they like it. I’ve used VoIP in the past to varying results.

    Thanks for sharing!

    Best wishes.

  85. ILG,

    Looks like we’re on the same page. 🙂

    Yeah, I agree that a stock like T is utility-like in terms of risk/reward, yield, FCF, etc. The big difference here is that T’s yield is pretty similar to what you could have had a few years back, while most utilities are substantially overvalued to the point to where their yields are on par with consumer products stocks. I’m surprised that T’s yield hasn’t really been chased all that much. But I’m also glad!

    We’ll see how this one goes, but I’m actually a little excited about the moves they’re making. As long as they can keep up the minimal dividend raises, I’ll be pretty happy.

    Thanks for dropping by!

    Best regards.

  86. Ah, good old T. It’s providing my portfolio the muscle it needs to fund our current lifestyle. I’m more than happy with the cost of living raises that we get each year. I’m leaving the high DGR role to other companies, such as AMGN and SBUX.

  87. Spoonman,

    We’re 100% on the same page, bud. 🙂

    We’ve got plenty of other stocks to pick up the DGR slack, while T does the heavy lifting in terms of income right now. You must really enjoy when those AT&T dividends roll in!

    Best wishes.

  88. Hi Jason,

    I’m a big fan, I visit your blog almost everyday since I found it. I was wondering if you could write an article about sector allocations in dividend portfolios.

    I started building a DGI portfolio recently and found myself with sectors allocations that is quite different than S&P. For example, my portfolio has ~10% Telecom and ~25% Consumer staples where S&P has ~3% and ~10% . Mine has no Tech and very little financial as well. I already own KO,KRFT,PG,UL and want to buy GIS, PEP and more PG but not sure if I should since the sector is already big. It’s just so different compare to S&P and I’m a bit concern if mine is out of balance or should not bother comparing since it’s a dividend portfolio? I’m also not sure if I should add Tech just to have exposure to the sector.

    I own both T and VZ as well. I was also surprised how the price war from T-mobile has little affect on them. I switched to t-mobile due to significant saving. I tried talking to my coworkers about how much they would save (at least $1000 saving over 3 years for many) but none want to switch especially from VZ because they were worry about signal strength and quality. None would consider even for a bit despite the significant saving, actually their reactions made me feel like a cheap person with a second class wireless carrier.

  89. YM,

    Thanks for the suggestion!

    I’ve been a bit hesitant to write about sector allocation because it’s really individualistic. What’s right or what works for me might not be the same for you. However, if you’re interested in my “ideal” allocation, I discussed that here:

    https://www.dividendmantra.com/2015/01/personal-capital-a-solid-and-free-portfolio-management-tool/

    I’ll see if I can come up with something for a full post, but I think it would mostly just be me extrapolating what I discussed in the above article.

    I’m not sure what you’re paying for your plan with T-Mobile, but I’m paying $25/month with Cricket. Not sure if it’d save you any money, but I looked around quite a bit and found it to be one of the best deals around:

    https://www.dividendmantra.com/2014/03/aio-wireless-25-unlimited-talk-text/

    Hope that helps!

    Best regards.

  90. Thanks Jason,
    About the tax implications the USA is a very good place to do business as opposed to the EU that is a nightmare. I’d like to have the wide range of options that exist in the US sucha as IRA’s and so on.
    If I want to invest in a EU company its a best option to try to find and ADR in the US than buying the stock in the EU market.

    We have a double taxation that gets refunded by the Spanish tax authority on june. Total is from 20% to 26% tax depending on dividend income.

    Best Regards.

  91. Hi Jason,
    There is a lot to like about T. They pay an awesome dividend. But more important T moves in directions that allows them to grow their FCF and keep guaranteeing (and hopefully growing) the dividend. Their expansion into Mexico seems a smart example. I’m contemplating upping my position in T as well. Dollar wise, at this price, I would average down. But the weak euro makes that my current cost basis is still lower. But then again, a strong dollar means the dividend is worth more in euro. 🙂
    T might be my February pick…

    Cheers.

  92. Jos,

    I agree. These moves should all be beneficial for FCF. The dividend was barely covered last year, so that trend can’t continue. But the lighter guidance for capex combined with the acquisitions should free it up.

    Hope you get your opportunity to average down. I actually averaged up quite a bit on this one, but I guess it’s been a long time coming.

    Cheers!

  93. AJ,

    Nice move there. I’m thinking about some of the supermajors, but I don’t really have an opportunity to average down much yet. CVX is trading near my cost basis, but I bought it back when oil was a lot higher. I have to imagine that better opportunities will come along. If not, I’m okay with what I have.

    I’d like more XOM, however.

    The good news about supermajors in comparison to the services companies is that the supermajors control the spending for the most part. Lower spending helps their results, whereas it hurts the services companies.

    Cheers!

  94. Great buy Superstar Dividend Mantra. At&T is also on my target list. I recently bought some VZ, so I will wait a bit. I now own 16 companies and it’s getting out of hands! A man’s gotta do what a man’s gotta do. But no more than 20. I promise.

    Keep it up!

  95. FF,

    Thanks! 🙂

    T complements VZ well, but one doesn’t need to own both. I own both, though not on purpose. I think they each offer something to like – VZ has a better reputation and FiOS, and T sports better financials – but you can certainly just run with one.

    Either way, glad to be a fellow VZ shareholder.

    Best regards.

  96. Thanks for the analysis. I have some shares of T and will pick up a little more soon. I’m hesitant to invest due to the tax season as well. I’m not sure how much tax we’ll owe this year, but it will be more than usual because we sold our rental home. I don’t want to run our liquid fund down too much. Have a great weekend. -Joe

  97. Joe,

    I know exactly how you feel. I’m in the same situation there. I’m not sure how much I’ll owe, but I’m expecting a pretty sizable bill, which is why I mentioned I probably shouldn’t have bought this stock here. Oh, well. 🙂

    The good news is that you guys don’t have to buy one stock and you’ll still cream your dividend income goal this year. You guys are killing it!

    Thanks for dropping by.

    Best wishes.

  98. T is on my short list right now, along with IBM, PM, CVX, and XOM. I have to fight the urge to buy the supermajors every time they drop.

    I took a look a CAT after their brutal 7% dive the other day. It’s at a 3-year low but I can’t shake the feeling it’s one of those cyclical traps that look great right before earnings fall off a cliff.

  99. Thanks for the analysis. I recently bought ATT as well! I’ve looking at it for the last few months and finally decided to buy it for many of the same reasons you indicated. It seems like a great by in today’s market.

  100. Justin,

    I hear you there on CAT. The guidance isn’t very good. So if (if) they hit that guidance, this seems like it’s probably fully priced now. That guidance was a bit of a surprise, which is why it dropped so hard. I think there’s probably limited upside over the short term, but it might make sense to initiate a long-term position here and keep an eye on it. That said, a double whammy from weakness in both energy and mining isn’t good.

    Happy shopping. This is just a sneak peek of the volatility that we want to see. 🙂

    Best regards!

  101. Paperboy,

    Glad you enjoyed the article!

    T makes a lot of sense here, in my view. The stock hasn’t been aggressively bid up, as the yield is similar to what you could have had years ago. To get a sustainable and growing yield near 6% in this market is a solid opportunity. Not the cheapest stock around, but the cash flow helps one to reinvest more aggressively back into those other stocks. 🙂

    Thanks for dropping by!

    Cheers.

  102. We’ve owned shares of AT&T for many years and must say we couldn’t be happier. A company with a juicy yield like T definitely helps boost those annual dividends. And the more dividends we can get, the more we can put back to work to obtain even more dividends. I know the dividend growth isn’t great but I’m more than happy to simply continue collecting the roughly 5% yield. 🙂 AFFJ

  103. Mantra,

    Still have to give the head nod to AT&T! With a 5.7% yield and the beloved dividend growth history – it’s never a bad time to make a common sense approach to purchase the monster behemoth of a telecom. I like it and dig it. I am curious, going forward, more from just an observation factor that if direct TV is automatically accretive to earnings, what that could mean for dividend growth going forward. Bottomline – great purchase, never a bad time to buy ATT when the stock hasn’t moved in quite some time. Great additional income you just added.

    -Lanny

  104. I think AT&T is at this valuation a fair Investment. In times when a lot of stocks are a little overvalued this is a solid choise. I ask myself if you have considered to buy DirecTV to get shares of AT&T? It looks quite good. A share DirecTV costs 85,28 $ and AT&T will buy it in all probability for 95 $ this year in cash and AT&T shares. So you can get an easy 11,4% return on your money and loose only the next 1-3 AT&T quaterly dividends. DirecTV alone looks also quite good. In 2013 they had 2608 Million Dollar free cashflow or 5,19 $ fCF per share. If DirecTV would stop making share buybacks and instead pay a dividend the yield woud be 6 %.

  105. AFFJ,

    Definitely! Stage 1 stocks like T can help accelerate the snowball early on by allowing big dividends to be reinvested into stocks with better growth profiles. And even someone who’s fairly far along can benefit, as the yield really helps buoy the entire portfolio’s income production.

    I’m more than happy to collect that yield near 6% right there with you. 🙂

    Cheers!

  106. Lanny,

    Yeah, it’s really interesting that T hasn’t been bid up more since rates are so low. We’ve seen that in utilities and REITs, but not so much some of the telecoms. Of course, I’m more than happy that’s the case. Otherwise, I probably wouldn’t have bought T here.

    As far as dividend growth goes, these acquisitions will be accretive, but the dividend payout is bumping up against FCF as it is. Lower capex guidance and some additional FCF should free that up a bit, but I doubt we’ll see dividend growth pick up markedly any time soon. Plus, they still have significant debt to contend with.

    Thanks for dropping by! Hope you’re having a great weekend over there. Good call on TUP a little while back. I passed due to the business model, but they’ve been doing well in spite of the Venezuela issues.

    Best wishes!

  107. Jonas,

    There are lots of merger arbitrage opportunities out there. LO was one that was open for a while and still kind of is. The risk/downside is that the merger/acquisition may not go through, and a lot of times the stock in question has already been bid up. So if, say, you wouldn’t ordinarily buy DTV, buying it in hopes that the acquisition goes through carries additional risk. And since there is a premium there on DTV shares, the shares could fall substantially if things don’t go through.

    “In 2013 they had 2608 Million Dollar free cashflow or 5,19 $ fCF per share. If DirecTV would stop making share buybacks and instead pay a dividend the yield woud be 6 %.”

    That’s true for a lot of companies. If IBM paid out all of their FCF in the form of a dividend, the yield would be near something like 8%. But if you have a high-quality business that’s undervalued, buying those shares is generally a good investment. Looking at their share price/valuation history, it looks like management there was making the right call.

    Best regards!

  108. I like T ! It’s my nr 1 payer, followed by kmi. I would not hesitate to buy more but next month I think I am gonna buy some tech stocks and energy. I like the lower price for msft, qcom and also cat, nov and cvx.

    Greets. Dd

  109. Hi DM,

    Seems like a solid buy to me. I’m also looking into AT&T and some other American stocks to expand my exposure to the american dollar.

    Cheers,
    G

  110. DD,

    Nice! T is now one of my larger payers as well. Let’s hope it continues paying for some time so that we can continue to roll those snowballs. 🙂

    Cheers!

  111. Geblin,

    T’s not going to knock anyone’s socks off, but the dividend is the draw here. It’s still surprising to me that T hasn’t been bid up more, like what we’ve seen with REITs and utilities. But that just serves as an opportunity for both of us. 🙂

    Hope you’re having a great weekend!

    Best regards.

  112. Mantra!
    Nice Buy, I got 120 shares of T and i could not be happier. Very good dividend + the business is understandable.
    Have been planning to buy some more, but not sure should i get more T or VZ. And how about Vodafone hmm..
    + there is like 5 good Telecoms in Europe that is paying dividend above 5%. Too many options 🙂

    anyway cheers!

  113. Hello Dividend Mantra, thanks for your very informative blog.
    You have not shown any interest in Total (TOT) which has a yield of 5.90%. Any thoughts on TOT?
    I will be watching the oil stocks closely over the next few weeks and hope to pick up some good deals. I have BP, BBL, NOV and OKE already at pretty good prices as I bought them in January.
    I will be watching to see if XOM, CVX, RDS-B, PSX dip further. Hard decision to choose which ones are best – but I will be holding all stocks for the long term.

  114. Ahna,

    Great point there about the business being understandable. I should have mentioned that. I don’t know all the ins and outs of the technology behind it, but it’s very easy to understand how they make money and how they should continue making money for the foreseeable future.

    The telecoms in Europe tend to have worst financials, except for perhaps Vodafone. The Canadian telecom market is also a good area to look at. The yields aren’t quite as high as some of the European companies, but the market isn’t quite as competitive. BCE and TU seem like fairly solid bets.

    Hope you’re having a great weekend!

    Take care.

  115. DD,

    The yield is very attractive here. The mouth waters and the eyes open up just a little wider when we see those big yields. 🙂

    I’m also interested in adding to XOM at some point here. It’s trading near my cost basis, but I bought it back when oil was a lot higher. So I wouldn’t mind it even cheaper. We’ll see what we get!

    Thanks for stopping by. Hope all is well in Finland.

    Best wishes.

  116. Jan,

    I owned TOT years ago. I haven’t looked at them in a while now because I own more than enough in the supermajor space, but I remember their cost of doing business as quite high. The French government taxes businesses pretty heavily and the foreign dividend tax was also high. In addition, I seem to remember their cost of replacing reserves as fairly expensive in comparison to a lot of competitors. Again, I haven’t looked in years. But I got out of the business because of taxes – both at the company level and investor level.

    Some of the oilfield services companies seem to have been disproportionately punished here, but lower capex will also hit them pretty hard. Lower capex has somewhat of an opposite effect on the supermajors, since that alleviates stress on free cash flow. I think they key is to focus on the companies that have been at it for many decades through all of the volatility and average your way in. Tough to catch a bottom in anything, and it’s really not necessary anyway.

    Happy shopping!

    Best regards.

  117. WiFi typically works because there is a fiber backbone to the infrastructure, take away the fiber and there’s a major problem with the link. The biggest owners of fiber and wireless spectrum being used is At&t and Verizon, it’s no accident since they’ve both been at it since the beginning being direct descendants of MaBell. Good long term buys, I own Vz and will most likely add T one of these days. Communications and those data highways are very important, worldwide. Might I add, Sprint owns vast amounts of wireless spectrum but lack the infrastructure to capitalize on their unseen real estate–it costs gobbs amount of money to build and maintain a network. Look at it that T and Vz own the most developed land within the communications/data world in the United States, hence creating successful business models.

    Now, if cash rich companies such as Google and Facebook partner with Sprint and Tmobile there could be a major turn around in this field; however, T and Vz have a head start with bigger developed infrastructures that they can use. It’s the incumbents then everyone else.

    Raymond.

  118. Raymond,

    Couldn’t agree more. Those pointing to new players coming in forget that it takes a ton of time and money to build out that infrastructure. There are certainly opportunities for partnerships across the industry, but I guess you’d have to ask yourself what exactly the end game is there. I can see why companies like Google and Facebook want to make sure everyone has internet access twice over, but Google and Facebook are interested in advertising dollars, not managing phone companies. There’s a big difference between getting a foothold in mobile hardware/software and actually managing the telecommunications services. Maybe they see something I don’t. In the meanwhile, I’ll be happy to collect a sizable dividend which slowly reduces my risk. In addition, I think it makes sense to continue diversifying here. Lastly, I don’t think I’d want any telecom to be a major position in my portfolio.

    Thanks for sharing. I definitely agree with what you’re saying here.

    Cheers!

  119. While making non-cash adjustments is all fine with respect to debt risk etc. I would caution ignoring them. Its not like the pension charge isn’t going to happen.

  120. Reese,

    Right. I think it’s less about ignoring them and more about realizing that the mark-to-market changes go both ways. For instance, last year T realized quite a boost to earnings due to a positive swing there. The ongoing cash flow tells a more accurate story.

    Cheers!

  121. Hello Jason,

    As you mentioned morningstar and S&P Capital IQ in your conclusion I wanted to ask are your decisions based on these investment tools most of the time? As a beginner in the stock market should I also start using some sort of investment tool to be able to find the best deals and predict divident growth and etc.

    And nice post again!:)

  122. heiksz,

    That’s a good question.

    I don’t base any decisions on analysts’ reports or anything like that. I do my own analysis/due diligence and come to my own conclusion. I simply like to compare my valuation results with what professionals out there think to concentrate the fair value. Sometimes I’m way off, but most of the time I’m within a tight range there.

    However, I think there’s a lot of value in analyses from professionals. I use them to get a handle on aspects of the business model I may not catch from annual reports and I also like to see what future growth rates may look like.

    In the end, they’re just one more tool in the tool bag. They should be part of your arsenal, but I wouldn’t use them as a crutch. A successful investor is most likely an independent thinker.

    Best wishes!

  123. Sorry, if you get a second could you explain how you got an interest coverage ratio of 7.48? Thanks

  124. Dave,

    That’s what Morningstar listed for TTM information at the time the article was written. It’s since declined a bit with new financials.

    Cheers!

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