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While I will be offering my personal opinion, I hope that some of the current facts will support my thesis. Of course we all know about how AT&T (T) has made so many mistakes in the last few years, and the debt level is greater than we want, but let me ask this question: Is AT&T going out of business anytime soon?
Needless to say I believe that T will be around for a long time. While I have no idea what years from now will look like, and I am not 100% certain about the lofty dividend going forward, I do believe that given the business that T is in, and the cash flow generated by ongoing operations, my gut says that T will keep paying and growing its dividend and eventually become a dividend king.
While that is my opinion, I realize that anything can happen so you must do your own research as well as a sort of soul searching about your own opinion about T going forward.
As I write this (late morning on Oct. 13), the stock continues to drop and in my opinion, it just might be time to add a bunch or begin a new position at these levels.
As T is approaching a 10-year low, as well as the precipitous drop back in March, I believe that the stock is closing in on once-in-a-decade opportunity. Not just for the share price but also for the ridiculous dividend yield which is approaching 7.50%.
Seriously, this is getting too good to pass up and for any sort of investor, it looks to me like a huge bargain. Yes the stock can go lower, but in my opinion I would continue buying on the way down. While any investor waits for at least some good news and price appreciation, this company is willing to buy you 7.50% at its current yield on cost for you to just wait and own the shares.
How safe is the dividend and what are some other metrics that might support my opinion? Well, take a look at this Seeking Alpha chart, which is part of the Premium service provided to subscribers:
I feel comfortable enough saying that I believe the dividend is safe, and T will continue paying and increasing its dividend for years to come. One of the major reasons for my opinion is the financial health of the company.
This chart is supplied by Fidelity Investments, and I urge everyone to really take a close look at it:
While this chart shows the share price is closing in on an undervalued level, the quality of the stock as well as its overall financial health should not be ignored, but should be part of an investor’s decision making. The fundamentals are solid and getting better, and the quality of the company is still extremely good. Yes, the growth is stagnant and that probably will be the future catalyst towards capital appreciation.
Even The Debt Is Very Slowly Being Addressed
This might not send your opinion to the moon, but it really should be noted.
Czech investment firm PPF Group has completed its acquisition of Central European Media (CETV) – meaning that majority shareholder AT&T has monetized its stake.
AT&T received $1.1B in cash, and no longer backstops the $575M in CME’s debt.
That’s consistent with its plans, AT&T says, to monetize noncore assets to focus on lowering net debt.
Any cash that can be placed into the register to either pay some debt or increase cash flow is a positive thing. Nope, it is not $100 billion, but $1.1 billion is still a lot of money and should not be shrugged off. That’s not to mention the elimination of a weak investment!
Most of us are already using T as a bond alternative, right? Well, what if even more investors use T as an annuity substitute?
AT&T Just Might Be An Annuity Substitute
Now, before everyone gets their noses out of joint, I am aware that fixed-income annuities “guarantee” a monthly stipend for life. It is not an investment, but an insurance product. And based on the reliability of the insurance company itself, it will determine whether that “guarantee” stays intact.
That being said, AT&T gives no such guarantees. In that regard we should take a look at its dividend aristocrat history over the years.
Continuous payment and continuous increases for more than 30 consecutive years. Yes, the last five years have been just 2% increases, but will you get that with a bond, or even an annuity? Well, yes, you can get a 2% inflation increase in a fixed annuity but you’ll have to take less money monthly – so what are you gaining? Nothing.
If you are thinking that an annuity is what you need, well, I won’t talk you out of it. But I will show you a comparison of what you would get right now with a $100,000 investment in T versus a purchase of an annuity insurance product. All you have to do is look at it and decide truly which one id right for you.
AT&T: $100,000 investment, as of this moment, will pay you about $7,500 annually or about $650/per month. The dividend is paid quarterly however.
If you purchase an annuity immediate fixed income for you and your spouse for $100,000 here is what you might get:
The most paid monthly right now would be about $350. Of course it will also pay your spouse if you pass away. That works out to about $4,200 annually, which will include a 2% annual increase option.
So: T = $7,500 annually, versus the fixed annuity product = $4,200 annually.
Right off the bat, you are losing $3,300 per year. Keep in mind that I believe T will keep increasing its dividend as well, maybe at the same rate, maybe more – but that it will maintain its dividend aristocrat status, based on the current fundaments that have been noted above.
One more important consideration: Once you pay for the insurance product, you will no longer have any access to your $100,000. Investing in T, you have immediate access to your money at the going share price, which might be higher or lower.
Taking a shot with T, you are getting nearly twice as much (or two years’ worth) of what a immediate fixed in annuity will pay you.
My Bottom Line
I know that annuities are fine for some folks, but given my opinion of T right now, it is obvious to me which way an investor should go. Yes, deferred annuities might be a good way of saving for the future due to current interest rates, but that won’t help you pay the bills.
It is my opinion that T is too much of a buy right now to ignore. Do your own research, and decide if you will feel comfortable owning T right now.
I would love to hear what the Seeking Alpha community thinks of my thesis. Are you inclined to buy T right now?
Not To Bore You, But…
Knowledge is power, and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something.
My work here will remain free to all of my followers (unless it is an Editor’s Pick! Then, the article will be openly available for only 24 hours or so. But I have no Marketplace service). My hope is that I’ll give you some of the things that took years for me to learn myself.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author used in his past worked for him, and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance. One more thing…I have no equities since I divested everything about 2 years ago due to very serious health issues and my personal circumstance.