Recent Buy: March 17th, 2015
I recently received my tax return and didn’t run off to take a vacation, buy a new car, or have a shopping spree. Some of it went toward the emergency fund for our upcoming wedding, and I used the rest for a recent investment. I’ve been all over the board when it comes to the starting dividend yield of my investments. My holdings of Visa (V), A.O.Smith (AOS) & Franklin Resources (BEN) each only yield around 1% but have high dividend growth rates and will have huge yield on cost percentages several years from now. On the other end of the spectrum I have larger yielding companies to help turbo charge my current smaller portfolio with their bigger dividends to reinvest. These holdings are more conservative, defensive, and slower growing but also an essential component to building my dividend growth portfolio. I recently added to one of the latter when I upped my position in telecommunications company AT&T (T) which has been steadily growing dividends for over 30 years.
On March 17th, I added 43 shares of AT&T (T) at $32.95 a share and a $6.95 commission for a total transaction cost of $1,423.80. AT&T provides wireless, wireline, and content services internationally and in the United States. Fast Graphs shows a current blended P/E of 13.1. This purchase yields 5.68% and adds $80.84 to my 12-month forward dividends for a new total of $1,687.85. This is the third time I’ve purchased shares of this business. The first time I had a free trade and hadn’t even discovered dividend growth investing, and the second time was about a year ago.
This purchase averages my position down around a percentage point, and I gain some very juicy dividends that I can keep reinvesting into more shares or selectively into other stocks. My very next dividend payout from AT&T in May will now be about $45 and when reinvested will purchase more than a whole share. Dividend reinvestment can really take off when you give it some power and time like this. When I look at the Fast Graphs 20 year performance chart with dividends reinvested the total return may not seem attractive, but the 13.5% yield on cost is very respectable and spits out $433.14 in dividends each year from the original $3,200 investment. The dividend income is almost twice that of the S&P 500 :
A lot has happened since I last invested in this slow growth company. Earlier this year, they acquired a few of Mexico’s largest wireless telecom businesses in Iusacell & Nextel Mexico. There are also future plans to acquire Direct TV (DTV) which will cement AT&T’s place as a content distribution leader across mobile, video and broadband platforms in both Central America and the United States.
Another major recent event was the Federal Communications Commission (FCC) ruling on net neutrality which will require AT&T to operate and classify its business as a utility going forward, with more government visibility, interaction and intervention. AT&T has been fighting this ruling for a while now. Senior level executive Jim Cicconi wrote in 2014 :
Invoking [Title II] would risk massive collateral damage to many, if not most, U.S. Internet companies. Title II could turn every edge or content company into a common carrier for at least part, if not all, of their services.
Well it happened. Under the new rules, the FCC has laid out three main provisions:
- No blocking: broadband providers may not block access to legal content, applications, services, or non-harmful devices.
- No throttling: broadband providers may not impair or degrade lawful Internet traffic on the basis of content, applications, services, or non-harmful devices.
- No paid prioritization: broadband providers may not favor some lawful Internet traffic over other lawful traffic in exchange for consideration of any kind—in other words, no “fast lanes.” This rule also bans ISPs from prioritizing content and services of their affiliates.
- To ensure an open Internet now and in the future, the Open Internet rules also establish a legal standard for other broadband provider practices to ensure that they do not unreasonably interfere with or disadvantage consumers’ access to the Internet. The rules build upon existing, strong transparency requirements.
AT&T earns tons of cash every single month, and I can’t imagine this ruling slowing them down much at all. The business is pretty much a utility anyway and has strong cash flows like one. In fact it appears very attractively valued based on free cash flow in a current fast graph:
On a personal level, we recently switched from AT&T’s parent company to their Cricket Wireless cellular service (referral link) where we pay only $30 per data line and couldn’t be happier with the savings. I love that my AT&T dividends could help pay for our phone bill!
Here are some inspiring links that I’ve read about AT&T recently:
Finally, here is a 20 year adjusted earnings fast graph of AT&T:
What do you think about AT&T and net neutrality?