Friday, October 30, 2015

Weekly Purchase 8 - T



For this week's sharebuilder purchase, I added to my existing position in AT&T.
I bought VZ a couple of weeks ago. I held off on T since I also have some exposure of AT&T in my Roth account. However, after reviewing the percentages of all my portfolios , it seems my exposure is minimal.

I treat both VZ and T as pseudo utilities. Therefore, I am expecting high yield but not much in terms of dividend growth. Based on recent earnings report, the yield, dividend growth history and the earnings growth rate are consistent with this expectation - It's a relatively boring stock.

Details of Purchase

On Tuesday, I bought 29.9699 shares of AT&T (T).

Action
Security
Price
Quantity
Amount
Buy
T
$33.24
29.9699
996

This purchase increases my forward annual dividends by $56.34.




About AT&T

You can read more about AT&T here:


For telecom companies, the key metric is sub count. More subs = More cash. You may be aware of the recent Direct-TV acquisition and the wireless move into Mexico. In my mind, these are things AT&T are doing to increase its sub count. Competitors such as Verizon, T-Mobile and the cable guys are trying to take these subs away. Therefore, my approach for pseudo utilities is to go BIG. Hence, VZ and T.

Criteria table

Area
Criteria
CheckList
Comment
Dividend Growth
>5 years
Yes
31 Years
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable - Note
FCF over Dividends
Yes
Yes
FCF covers Dividends
M* Moat
Wide Moat
No
M* Narrow
M* & S&P
Credit Rating
> BBB
Yes
BBB
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
No
Cash to Debt 0.18
Interest Coverage 3.25
Debt to Equity 103.37
M* & S&P Stars
> 3 Stars for both
Yes
M* 3 Stars
S&P CapIQ  4 Stars
Payout Ratio
<60%
No - but FCF based payout ratio is good
185%
Dividend Yield
>3%
Yes
5.63%
Dividend Growth
>5%
Yes - but future short term growth in 2-3% range
2.30%
Chowder
>8%
Close enough
7.93%
Yield/Avg Yield
>1.1
No
1.03
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 34.81
Low Point 28
P/E
Below Mid Point
No - but due to one-time changes, forward PE lower
Median 29.26 Current 35.18 Forward P/E 11.9
DRRM
~8% for Telcos
Yes
Assuming 3% growth; projected return=7.77%
M* Estimate
<M* est
Close enough
M* 33
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 39


Data from Gurufocus, Yahoo Finance, Google Finance, M*, S&P Capital

From the criteria table, there are clearly some issues if you focus on the numbers. But checking the IR page, I think the P/E is understandable. The high payout ratio and high debt can be concerns. But thinking through, this is consistent with Pseudo utilities.

My plan is to reinvest the dividends. So long as it continues to generate cash and provide a decent yield, I will continue to invest the dividends for the snowball effect.

Fair Price Calculation

I use the dividend yield theory, PE analysis and DDRM for fair price calculation. Based on these methods, I estimate the fair price to be in the 33. Therefore, I believe T is trading at fair value.

It would be better if the price is lower so I look forward to add more if T drops to 30.

That's it for now! What do you think of T?

D4s

8 comments:

  1. Ive been eying this company for months now...want to add more - and looks like its as good of a valuation as it can get at this level. Congrats on adding more to your FYDividends.

    R2R

    ReplyDelete
    Replies
    1. R2R, thanks. I think T is good for the yield. The dividend growth will be low. But overall, VZ and at are pieces in my grand scheme of things. Thanks for visiting.
      D4s

      Delete
  2. I've been debating between ATT and VZW for a bit now, and just can't make up my mind between the two. Nice to see the addition to the forward yield, and THANK YOU! for adding the link to the company portfolio. :) Love that touch!!

    Cheers!

    ReplyDelete
    Replies
    1. Do what I did.. buy both :) VZ under $44 and T under $33 are nice entry points.

      Delete
    2. Dividends wit children,
      Yes - go for both. Just like KO and Pepsi - note to self. Need to add Pepsi. Next drop
      D4s

      Delete
  3. Div4Son,

    Love AT&T, always! One of the foundation stocks for a dividend portfolio, no doubt. I just got my dividend check this quarter, and own quite a bit - over 150 shares! Easy to buy and easy to invest. Congrats on the purchase and enjoy the dividends.

    -Lanny

    ReplyDelete
    Replies
    1. Lanny,
      I am glad to be a fellow shareholder. T will be around for a very long time. Thanks for visiting!
      D4s

      Delete
  4. I had T on my portfolio. I was very skeptical at first since T doesn't move much. However, the nice aspect about it is the stock price remain stable even during the downturn. And the company has continuing to reward shareholders. T has a history of raising interest in the coming months. So, it should add more income to your portfolio soon. :)

    Cheers!

    ReplyDelete