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 :

2015_MAR_FG_T2

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:

2015_MAR_FG_T3

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:

2015_MAR_FG_T

What do you think about AT&T and net neutrality?

My Dividend Growth

http://www.mydividendgrowth.com

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34 thoughts on “Recent Buy: March 17th, 2015
  1. Retire Before Dad

    MDG,
    I think T and VZ are solid long-term buys. Delivering data to smart phones is so critical to our economy now and I can’t see that becoming irrelevant. Perhaps a technology will come along that displaces it, like widespread wifi from balloons or satellites or something. But that threat isn’t imminent. I sold an April T put at $33 a while back. So if it remains below $33 next month I’ll be buying another 100 shares at that price, which I don’t mind at all.
    -RBD

     
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    1. My Dividend Growth

      Great points, RBD and I couldn’t agree more. Data and wireless are only growing bigger as the world becomes more connected and it’ll be fun to watch how everything evolves from here considering the internet and related technologies are still in their infancy. It’ll be interesting to see how long AT&T can stay on top of things and how far they can expand outside the US with new FCC regulations. Meanwhile I’ll take that solid dividend income. I always like hearing about options trades and watching yours. Once I have a bigger portfolio and enough cash to support those 100 share lots I’ll be diving in. Always great to hear from you, take it easy!

       
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  2. Scott

    Nice buy! I just bought some T as well and hope to pick up more in the future. I haven’t looked at its premiums recently, but, as RBD did, selling some puts on T might be a great way to add some monthly income as well as buy shares at a discount. I just can’t imagine the premiums being that good since T doesn’t have that much volatility.

     
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    1. My Dividend Growth

      Thanks, Scott! It seems we had both been buying lower to mid yielding stocks lately, so it’s great we’re getting some higher dividends to reinvest here in T. I like that no matter the mix of starting yields across my portfolio, the income should all tend to balance out over longer periods of time. I feel like a noob for not using options more, but selling some puts seems like a super smart and safe way to get started. Great to hear from you and happy ALMOST-Friday. 🙂

       
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  3. Dividend Mantra

    Ryan,

    We’re obviously on the same page here since we bought a similar number of shares for a similar price. 🙂

    AT&T has a lot to like, and it has some things not to like. All in all, that rather large and stable dividend gives my portfolio a nice little cash machine that just spits out money every quarter, which I can reinvest as I see fit. If this is all about collecting enough passive income to live off of, T’s one of the better options for a defensive, high-yield stock. Like RBD, I’m open to the possibility that there could be some kind of technology that eventually displaces T’s massive network, but I just can’t foresee that happening anytime soon.

    Glad to be a fellow shareholder!

    Best regards.

     
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    1. My Dividend Growth

      Jason,

      Your holdings and decisions are always so spot on, I feel very comfortable when I follow in your footsteps! It’s nice that these beefy dividends will help these early stages of my portfolio right away because my overall yield almost dropped below 3% which is too low for my objectives. It’s fascinating to envision the future of this industry. It’s pretty cloudy and unpredictable and AT&T has struggled to play catch up many times in its past. Hopefully they can find a way to innovate, adapt, and grow with any future changes before it’s too late…oh and keep paying those juicy dividends! Glad to hear from you!

      Happy Thursday!
      ~Ryan

       
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  4. DivGuy

    Hello Ryan,

    If you like T, you might want to take a look at “our” T on the Canadian market. Telus (NYSE:TU or TSE:T) is a telecom company in Canada. This is my favorite telecom in Canada. The div yield is at 3.77% with an impressive growth rate lately (management aims at 10% div growth until 2016). The stock is up 132% (without dividend) for the past 5 years and the P/E is just 18.44 still. Telus is also among my favorite stock picks for Canada this year 🙂 check it out and let me know what you think!

     
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    1. My Dividend Growth

      Hey there Mike, thanks for providing that nice looking research candidate. That sounds like incredible growth for a telecom and I’ll definitely dig in and add it my watchlists. Hope all is well with you this week!

      Best Wishes,
      Ryan

       
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  5. Dividend Growth Journey

    Great purchase Ryan. I have been adding AT&T the last few weeks as part of my weekly purchases and have a small position now. I am looking forward to continue adding to this stock over the next few weeks/months. The stock has been going sideways for a long time now and so I think I can slowly build my position while collection 5+% divs.

     
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    1. My Dividend Growth

      Excellent idea DGJ, can’t go wrong with an almost 6% yield. My big bonus is that I’ve been an AT&T customer for years too, so might as well put my money where my mouth is (literally!). Sideways day trading is great for us long term income investors, I will never expect much of a capital gain on this one but am looking forward to putting those awesome dividends to good work. Hoping you have a great weekend my friend!

       
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  6. Monsieur Dividende

    If only the Canadian dollar was on par with the US, I’d probably buy some telecom too. But right now it’s too expensive so I invest in Canadian Banks! Nice buy, can’t go wrong with T. I own a little bit of Verizon and I’d will buy some more eventually. Let’s wait for a correction, right.

    Thanks for sharing.

     
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    1. My Dividend Growth

      I hear you on the US dollar, MD. I hope it starts reverting back to normal soon. It seems there might be some good telecoms in Canada too so hopefully we get that correction you’re speaking of and have plenty of options. Meanwhile, I’ll be interested to see where you invest next. Have a great week ahead!

       
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  7. Tawcan

    I continue to think that telecom companies are good buys. People are using their phones and tablets more and more and relying on data connections. Furthermore, the Internet of things trend will only bring more money to these telecom companies like T and VZ. Sure there will be competitions but considering it takes a long time to build the infrastructure it’s unlikely that a competitor will enter the market all of a sudden.

     
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    1. My Dividend Growth

      Exactly! Great comment. I think we’ll both do quite well with this one over the long term. Right now it’s phones and tablets and who knows what it’ll be in next few years, but there’ll likely always be someone providing connectivity and I hope AT&T always finds a way to be that company. Awesome to hear from you Tawcan and I hope you had a nice weekend!

       
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    1. My Dividend Growth

      Thanks for sharing, Vivianne! That sounds like a great second brokerage if we ever decide to become homeowners or max out the current accounts, but for now it’s a bit too much cash on hand for my comfort level. Take care this coming week!

       
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  8. Dividend Diplomats

    Great purchase Ryan. I am a big fan of AT&T and own quite a few shares myself. The recent ruling doesn’t bother me too much, as T should be able to adapt quickly and spin it into a positive based on their position as a market leader. I would be more concerned if I owned a smaller company that doesn’t have diversified operations, which is not T at all. But way to take advantage of the current environment and add one heck of a dividend yield to your your portofolio in a strong company. I cannot think of one negative thing about this purchase, as the high yield eases any concerns about a low dividend growth rate.

    Isn’t it a cool feeling when a dividend can cover a bill? IT hasn’t happened for me yet, but I can imagine how it will feel one day. Especially when the dividend from your communications stock covers your monthly telephone bill!

    Keep up the great work Ryan!

    Bert

     
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    1. My Dividend Growth

      Thank you for the thoughtful comment, Bert! These huge dividends definitely make up for some of the lower ones I’ve been accumulating lately. I’m hoping it’ll all balance out it the end. Couldn’t agree more with your thoughts and I imagine we’ll both be very happy that very first time our T dividends completely cover the phone bill. Hope you had a relaxing weekend before the grind of the coming work week. Take it easy my friend!

       
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  9. My Dividends

    Great Buy Ryan! I was purchasing T also on 17th March, but only 6 share due to my lack of fresh capital. As I’ve analyzed AT&T I also checked it on different dividend sites as AT&T is not providing/selling in Germany. I’m glad that I did the right in buying AT&T.
    Cheers, Patrick

     
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    1. My Dividend Growth

      Great to hear we bought shares around the same time, Patrick. I think you made a solid and stable choice, even if you can’t physically check-in on a store since it’s not in Germany. BIG congrats on starting the blog, it looks awesome. If you stick to the plan you’re going to win! Best wishes and I’ll be rooting you on!

       
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  10. Dividend Gremlin

    MDG,

    Nice move. I like the FCC’s ruling and buying the stock. You are right, in the long run this is blip on the radar. Good to see a tax return getting used for something like that, ours went to vehicle repairs… had to happen at some point.

    – Gremlin

     
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      1. Dividend Gremlin

        Haha, I wish life was so simple. The money went straight into a new timing belt on my wife’s car. At the same time my car’s engine is no longer what it used to be and it is starting to live on borrowed time, so I have to trade it in.

        No fancy car, but cars stink whether new or old.

         
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        1. My Dividend Growth

          Sorry to hear about the problems, Gremlin 🙁 Life has an annoying way of hitting us hard sometimes. I’m just glad you’re super responsible and mindful of the expenses and needs! Stay well my friend.

           
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  11. The Broke Dividend Investor

    Good buy MDG,

    I recently bought some more T for that 5% yield. I don’t think T will have a problem with net neutrality as they are starting to move more outside the US. We all know about the direct tv deal but their mexican buys are more interesting. According to the census, there will be a large shift of hispanics growth in the US in the next 5-10 years. A large portion are foreign born from mexico and latin america. If T can capitalize on this need, we might see them growing faster than Apple.

     
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    1. My Dividend Growth

      That’s awesome to be on the same page as you, congrats on your purchase as well. That’s a great point that everyone looks at minimum expectations from here, but what if the company were to really start growing again… then we’re set 🙂 Glad to find your blog, it’s pretty awesome and I’m excited to follow your progress!

       
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  12. Dividend Legion

    Hey Ryan,

    Great company with a sensational yield. I’m jealous! I really want to buy some T shares myself at the current price point, but need to get my paycheck first! Classic “problem” for a dividend growth investor I guess… 😛

    Cheers for sharing!

    DL

     
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