AT&T Yielding 6%+

[traineeinvestor]

What is worrisome about T is that just about all of their businesses are slowing declines and they have bunches of debt.

The combination of a deteriorating business and high debt is enough to put me off no matter how good the dividend yield is.

As a retiree, as much as I like a decent yield, I am more concerned with how sustainable that yield is and whether it can grow to offset inflation than how big it is at the moment.

 

[flintnational]

Good points. I think copyright1997 is correct to point out the dividend may need to be cut if T is going to compete in the content area. I did notice other content providers do not pay dividends anywhere near T's yield. Thanks all. I am on hold at the moment.

Edit to add: As a confirmed indexer I must admit it is a little scary over here on the dark side. Now that I have tasted the forbidden fruit of stock picking, whats next? Market timing? Then you are just one step away from crypto-currency. When will it stop?

 

[Bigdawg]

Edit to add: As a confirmed indexer I must admit it is a little scary over here on the dark side. Now that I have tasted the forbidden fruit of stock picking, whats next? Market timing? Then you are just one step away from crypto-currency. When will it stop?

posting at 0342 on a Sunday? Maybe invest in a pharma? Something to get to sleep?

 

[jjflyman]

The only 2 individual stocks I am invested in is XOM, and I just added T to that list this week after it dropped.
I am very happy to take a 6% dividend

 

[flintnational]

posting at 0342 on a Sunday? Maybe invest in a pharma? Something to get to sleep?

Yes, I am an early riser. But then I am usually in bed at 9. Saves on liquor bills. The "night life" line in our budget is pretty skimpy.

 

[nash031]

The combination of a deteriorating business and high debt is enough to put me off no matter how good the dividend yield is.

I think your definition of "deteriorating business" and mine are different. I think if you're focused on one or two specific business segments, they are "deteriorating", but there's a lot more to the whole of the company, in my opinion, than is given credit for by some here. I've been wrong before.

 

[aja8888]

The combination of a deteriorating business and high debt is enough to put me off no matter how good the dividend yield is.

Hmmm, isn't this just the reason T made the TW acquisition?

 

[nash031]

Hmmm, isn't this just the reason T made the TW acquisition?

I think it is. I think a big part of the "negative long term trend" the technician pointed out over the last two years is largely related to negative news with respect to the Justice Dept and this merger. In all, it's going to go through eventually, and I expect the negative press will die down, with T returning to fairly valued from its current (IMO) undervalued state. I think this is similar to when AAPL was all negative in the news a back in 2013, though AAPL clearly had more room for growth than T does, again IMO.

 

[Montecfo]

The stock declined when the judge ruled. So I think investors are wary of the debt and low growth in rising rate environment.

The merger has already happened BTW, 6 weeks ago.

 

[nash031]

The stock declined when the judge ruled. So I think investors are wary of the debt and low growth in rising rate environment.

The merger has already happened BTW, 6 weeks ago.

The merger has happened, but none of the acquired businesses have actually been reflected in anything meaningful. So the debt sits there with nothing to show for it to this point. So yes, they incurred a lot of debt to do so, but as others have pointed out several times in this thread, cash flow covers it, and the long-term debt to asset ratio is not eye-opening, at least not in my estimation. Again, I've been wrong before. Anyway, the debt is baked into the share price as it stood before the recent dip below 31. Recently, the stock dropped with the quarterly financials came out still reflecting the debt on the books, but really nothing new was reported because nothing had changed.

 

[Montecfo]

The assets are on the balance sheet and so is the debt.

The forecasts and guidance reflect the acquisition.

 

[nash031]

AT&T Yielding 6%+

The assets are on the balance sheet and so is the debt.

The forecasts and guidance reflect the acquisition.

The debt to asset ratio isn’t bad, and cash flow more than covers it. Not sure how anyone accurately forecasts a situation like this... that is, they don’t. Anyway, my opinion is known. Time will tell.

 

[Canned at 62]

Yield is not the same as interest.

If I have a $1000 in a bank that pays 3% interest, at the end of the year I have earned $30.

If I own T (ATT) and have $1000 in shares and it has a 6% yield, the dividend is paid quarterly. The night before the dividend is paid the price of the share is adjusted down to the to the same as the dividend. If you reinvest the dividend you are equal. If you spend the dividend your account is now 6% less than before.

High yield stocks like ATT (T) historically have much lower total return than a total stock market ETF. For example, if you invested $1000 in T on January 1st, 2000 it would be worth $964 today with dividends reinvested. A Total Stock Market ETF (VTI) would be worth $3746 today with dividends reinvested.

https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults

 

[ownyourfuture]

if you invested $1000 in T on January 1st, 2000 it would be worth $964 today with dividends reinvested. A Total Stock Market ETF (VTI) would be worth $3746 today with dividends reinvested.

Well that certainly silenced the bulls
But in fairness to them, it seems like most of them are either new to the stock, or are only considering buying.

 

[lucky penny]

Yield is not the same as interest.

If I own T (ATT) and have $1000 in shares and it has a 6% yield, the dividend is paid quarterly. The night before the dividend is paid the price of the share is adjusted down to the to the same as the dividend. If you reinvest the dividend you are equal. If you spend the dividend your account is now 6% less than before.

https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults

Thanks for this. It's probably Finance 101 but it's an excellent reminder for someone (guilty!) who's been watching the stock since this post began & is smug about owning a few high-yield stocks.

 

[bobandsherry]

High yield stocks like ATT (T) historically have much lower total return than a total stock market ETF. For example, if you invested $1000 in T on January 1st, 2000 it would be worth $964 today with dividends reinvested. A Total Stock Market ETF (VTI) would be worth $3746 today with dividends reinvested.

Interesting how you calculated return in VTI since 1/1/2000 as inception date of that fund is 5/24/2001.

https://institutional.vanguard.com/iippdf/pdfs/FS970R.pdf

 

[nash031]

Well that certainly silenced the bulls
But in fairness to them, it seems like most of them are either new to the stock, or are only considering buying.

Or we just don't live on the forum and just got around to seeing the post. Otherwise, cherry-picking T at a certain point in time and comparing it to VTI and then making a declarative statement like his seems like a narrow viewpoint, FWIW.

Anyway, I viewed the stock as very much undervalued at 30.50, I have a fair value target. When it hits that, I'll sell, just like I have done with double the position of AAPL. If it never hits that, well, sucks for me and that 1% of my portfolio, I guess! But the 65% of my port that's VTSAX should pick up the slack.

 

[redduck]

...If I own T (ATT) and have $1000 in shares and it has a 6% yield, the dividend is paid quarterly. The night before the dividend is paid the price of the share is adjusted down to the to the same as the dividend. If you reinvest the dividend you are equal. If you spend the dividend your account is now 6% less than before.

High yield stocks like ATT (T) historically have much lower total return than a total stock market ETF. For example, if you invested $1000 in T on January 1st, 2000 it would be worth $964 today with dividends reinvested. A Total Stock Market ETF (VTI) would be worth $3746 today with dividends reinvested.

https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults

I have a question:

Let's say ATT (T) has had a once-a-year dividend pay-out of 6%. And, the stock price is adjusted down by 6% the night before the payout. If the company's value is diluted by 6% each year why doesn't the stock price eventually hit $0.00?

 

[bobandsherry]

I have a question:

Let's say ATT (T) has had a once-a-year dividend pay-out of 6%. And, the stock price is adjusted down by 6% the night before the payout. If the company's value is diluted by 6% each year why doesn't the stock price eventually hit $0.00?

Why does any stock increase in value? Same reason.

 

[flintnational]

Yield is not the same as interest.

If I have a $1000 in a bank that pays 3% interest, at the end of the year I have earned $30.

If I own T (ATT) and have $1000 in shares and it has a 6% yield, the dividend is paid quarterly. The night before the dividend is paid the price of the share is adjusted down to the to the same as the dividend. If you reinvest the dividend you are equal. If you spend the dividend your account is now 6% less than before................

I don't think it works like this. Stocks are paying dividends from retained earnings. Accordingly, in a static world, if the dividend equals the earnings, the price of the stock would stay level over time. (In the real world dividends and retained earnings are never equal, and investor sentiment also drives stock prices.)

Here is investopedia's take on this topic. They describe a theoretical run-up in price once the dividend is announced and then a decrease once it is paid. So price is static excepting market sentiment.

"The declaration of a dividend naturally encourages investors to purchase stock. Because investors know that they will receive a dividend if they purchase the stock before the ex-dividend date, they are willing to pay a premium. This causes the price of stock to increase in the days leading up to the ex-dividend date. In general, the increase is about equal to the amount of the dividend, but the actual price change is based on market activity and not determined by any governing entity.

On the ex-dividend date, investors may drive down the stock price by the amount of the dividend to account for the fact that new investors are not eligible to receive dividends and are therefore unwilling to pay a premium. However, if the market is particularly optimistic about the stock leading up to the ex-dividend date, the price increase this creates may be larger than the actual dividend amount, resulting in a net increase despite the automatic reduction. If the dividend is small, the reduction may even go unnoticed due to the back and forth of normal trading."

 

[NW-Bound]

I try to be diversified, so do have some dividend stocks myself. Hence, I find this thread to be of interest.

Yield is not the same as interest.

If I have a $1000 in a bank that pays 3% interest, at the end of the year I have earned $30.

If I own T (ATT) and have $1000 in shares and it has a 6% yield, the dividend is paid quarterly. The night before the dividend is paid the price of the share is adjusted down to the to the same as the dividend. If you reinvest the dividend you are equal. If you spend the dividend your account is now 6% less than before...

True.

However, if a company is any good, its stock price will slowly resume its climb, at least to keep up with inflation in the long run.

...High yield stocks like ATT (T) historically have much lower total return than a total stock market ETF. For example, if you invested $1000 in T on January 1st, 2000 it would be worth $964 today with dividends reinvested. A Total Stock Market ETF (VTI) would be worth $3746 today with dividends reinvested.

https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults

Wow, is T that bad?

To double check, I use Morningstar which also uses historical records to show stock and MF performance. I compare T and VFINX (Vanguard S&P500), using a $10K investment starting on 1/1/2000 with dividends reinvested.

Date | ATT | VFINX
1/1/2000 | 10,000 | 10,000
1/1/2005 | 6,358 | 8,864
1/1/2010 | 8,882 | 9,016
1/1/2015 | 14,031 | 18,359
1/1/2018 | 18,964 | 25,288

So, T is trailing the S&P500, but not as bad as a ratio of 1:4. There were even some periods where it led.

So, some Web site is wrong. Is it portfoliovisualizer, or is it Morningstar?

 

[Al18]

To further complicate matters, AT&T in 2000 is not the same company as in 2018. AT&T was broken up, sold off and merged with other companies over the years. SBC bought AT&T in 2005. This history of AT&T is here https://en.wikipedia.org/wiki/History_of_AT%26T

 

[target2019]

VTSAX Total US Mkt beats all, I think, in those time periods up to present.

T is a different company as of the recent merger. As pointed out it in the Wiki there are many splits and recombination of telecom companies. Some history matters, but AT&T/Time Warner has great potential.

Indices get to drop their laggards, while an individual company has M&A to stay ahead of the pack, at least in theory.

 

[flintnational]

Well, if we liked T at $32 with a 6% dividend, we should love it today trading at $30, down 7%. I didn't check but I assume an earnings miss? Hey the PE is 6. The original thread question asked about T as a bond replacement. At the current price, PE and a +6% dividend, maybe.

 

[Mr. Tightwad]

I bought it at 30.50 in July, and will continue to hold.