This is the second post updating some of my recent portfolio changes. I have been intrigued by the recent price decline of the telecom juggernaut that is AT&T. Because of several catalysts I added more AT&T here.
AT&T hardly needs a discussion, so let’s get to the crux of the matter. Investors frequent the company as being a high dividend payer while also being a slow and steady earnings grower. Shares go through periods of looking more or less attractive as the share price bounces around. What has made shares look interesting lately has been their 10% drop in the past 6 months. See the included YChart.
Additionally, as the dividend yield moves in the opposite direction of price, the yield had been trending higher over the course of those same 6 months. I become more interested in AT&T (and to a lesser extent currently Verizon) when shares cross over 5%.
Shares very briefly recently touched 5.50% which was a very short lived event. I purchased another batch of AT&T shares at $36.08 which was good for an initial yield of 5.43%. Not the absolute perfect but show me any investor that is able to ring the bell at the top or bottom of a stock move.
In a week the stock bounced back 6%. I’ve made four separate purchases of AT&T shares in my retirement account and this is actually the second best price I have gotten. My original lot purchased in November of 2015 was my best at $33.69.
I like AT&T significantly more than Verizon at this time, I think they are making stronger moves with the DirecTV acquisition and now with the impending, what looks to be successful merger with TimeWarner.
On the flip side, Verizon has been acquiring past tech names with Yahoo and AOL to name two. Additionally, Verizon’s current yield is under 5% which seems hard to wrap my head around. The two stocks typically trade with very similar yields so a disparity this big doesn’t come around too often.
Historically, the spread between the two was justified as Verizon had been much more entrenched with their wireless dominance. Spreads tightened over the past year only to very recently separate once more.
One last thing I want to note is that with strategic purchases of shares of a slow moving behemoth like AT&T can still prove to be quite profitable.
Starting with a 15 year Fast Graph of AT&T, you can see the share price (black line) meandering around the blue line (the historical average multiple paid over the past 15 years). Visibly there are times when the market has paid a premium to buy shares (when the black line is above the blue) and at other times shares seem to trade at a discount (when the black line is below the blue).
Without cherry picking the hypothetical buy and sell times too much, an investor could have done quite well over the past several years.
In this example, our hypothetical investor purchased when shares were trading at 12.8x earnings. Dividends were reinvested over the time frame. A 13% annual rate of return was seen in this example.
The first note was that the P/E multiple had risen slightly to 13.5x in this example so some benefit was due to multiple expansion. More importantly though, is that the 13.5 multiple was still BELOW the historical multiple paid over the time frame. A more aggressive sample of buy and sell times could have produced even stronger results. Please note also that AT&T has a beta around 0.60 (for every $1 move in the S&P 500, AT&T may move $0.60). This only boosts risk adjusted returns. A reasonable return can be obtained even with a big company.
With AT&T being one of the higher yield stocks I own, I am always interested when the dividend yield peaks above a certain percent. My interest point increases over 5% but even just a few years ago yields near 6% were possible.
I added shares in my personal taxable account because of my conviction. A large part of the strategy in that account is to accumulate shares of SCHD. In this case I felt compelled to have an additional individual holding.
Using Custom Stock Alerts you can receive custom email or text alerts when a stock triggers a particular event. For example I have an alert should AT&T go above 5.5% again.
Come on over, sign up, get some alerts and take more control over your holdings.