Dividend Increase: AT&T (T)

About one of the most boring companies you can invest in, AT&T (T), has announced its token dividend increase for the year of $0.01 per share.  This brings the dividend to $0.49 per share quarterly from $0.48, representing a 2.08% increase for the year.  This falls exactly inline with my expectations.  Also, this marks 33 years straight of dividend increases for T investors, and like clockwork takes place with their Q1 payment.  The current yield as of 12/13 is 4.74%.

About the most interesting thing happing with AT&T is the buyout offer of TWX, so they can have all of that lucrative Time Warner content and leverage with the other cable providers.  Content is king.  Look at what shows like The Walking Dead and Breaking Bad have done for AMC Networks.  But seriously, it would also put Batman and the DC comics library under AT&T.  Those super hero movies easily make a few hundred million at the box office, then you have all the licensing deals as well.

Lets take a look at the dividend history:

So we have a 33 year streak in payments (history is a little messy in the late 80’s early 90’s with break ups, spin offs, mergers).  Over the last 13 years, we have an average annual increase of 3.59%.  Annual payout is the same at 3.59%, since the increase takes place in Q1.  Nothing exciting here, basically a streak of $0.01 increases and pretty much what would be expected for the upcoming 2018 year.  While the dividend growth is nothing exciting to look at, it is consistent and has a low threat of being cut.  Also, the current yield is not bad, but if you catch T on a dip, you can easily a yield in the neighborhood of 5%.  Not as high as some REIT investments, but a hell of a lot safer from a cut.

Company Data:

Market Cap: $254 Billion

PE Ratio: 17.59

Profit Margin: 8.87%

Revenue: $164 Billion

Total Cash: $5.98 Billion

Total Debt: $128 Billion

Current Yield: 4.74%

Payout Ratio: 81.36%

There’s really not much to say about this company.  It’s that boring.  When you think about their business lines of mobile, fiber, and satellite TV, it’s really just a recurring stream of revenue.  Most people are unwilling to go without their cell phone and home internet.  About the biggest risk to any cable type of operator is the increase of people cutting the cord.  What will most likely happen, as revenues decline from cable and satellite subscribers, the price of internet access will go up to at least offset the revenue decline in cable/satellite.  Since more people are using streaming services and the eventual mass adoption of 4K, bandwidth needs from consumers will also rise.  This is where the internet service providers will be able to make up that lost revenue, by charging more for higher bandwidth or capping data limits.  Cord cutting also shows the importance of the providers having content that people want to watch.  This circles back to AT&T’s want for buying TWX.  It’s all about content.  If you look at the Direct TV line of business for T, one of their most got you by the balls  content is NFL Ticket.  Anyone addicted to the NFL and needs more football than what is already on Sunday, prefers Direct TV because of sports.  So, people are willing to shell out for the content they want.  The cable providers know about the drop in subscribers, so one way to slow or try to reverse the trend is to have exclusive content that people will pay for.

Performance vs S&P500:

big

Going back 10 years, compared to the S&P 500, T has severely underperformed.  I’m sure if you add in dividends, total returns will narrow the gap, but it’s late and I’m too tired to go back to figure it out.  This really is just one of those super boring yield plays, as actual appreciation is pretty limited.

Conclusion:

Unlike some of my more major holdings like JNJ or MO, T is not one that I believe I will hold onto forever.  Sure the predictable dividend is nice, even the yield is nice, but the limited range of the stock price is a bit annoying.  I’ve been a shareholder for about 3 years, and I would say the stock has sat around the mid 30’s most of the time.  I will probably sit around a bit longer to see how the TWX offer plays out, but beyond that I may look to close out my position and look at other better growth opportunities.  My sight focuses a lot on dividends and dividend growth, but I also don’t want to sacrifice share price appreciation at the expense of collecting dividends.  I want my cake and to eat it too.  With that said, the recent jump in price may present a good opportunity to exit and wait for a pull back to the mid 30’s again.  If the proposed merger does not go through, T faces a $500 Million breakup fee (much smaller than the breakup fee faces on the failed purchase of TMobile).  As far as the dividend in 2018, I expect just another $0.01 increase.

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