Dividend Champion: AT&T Inc
This article looks at AT&T Inc. (NYSE:T), a Dividend Champion, through the lens of the F.A.S.T. Graphs™ Fundamentals Analyzer Software Tool. Since a picture is worth a thousand words, the reader will be provided the “essential fundamentals at a glance” expressed vividly in pictures. In order to provide you the opportunity to research this company deeper and faster we are providing a link to a live, fully functioning earnings and price correlated set of graphs Found Here. (Tip: Run your mouse over the various lines and watch the graphs come to life).
A Dividend Champion is defined as a company that has increased its dividend every year for 25 or more straight years. AT&T Inc. (NYSE:T) is a dividend champion that has raised its dividend every year for 28 consecutive years. The complete Dividend Champions list is compiled courtesy of David Fish. (Open as an excel spreadsheet and look at the tabs on the bottom to find the Dividend Champions list).
About AT&T Inc: from their website
“AT&T Inc. (NYSE:T) is a premier communications holding company and one of the most honored companies in the world. Its subsidiaries and affiliates – AT&T operating companies – are the providers of AT&T services in the United States and around the world. With a powerful array of network resources that includes the nation’s fastest mobile broadband network, AT&T is a leading provider of wireless, Wi-Fi, high speed Internet, voice and cloud-based services. A leader in mobile broadband and emerging 4G capabilities, AT&T also offers the best wireless coverage worldwide of any U.S. carrier, offering the most wireless phones that work in the most countries. It also offers advanced TV services under the AT&T U-verse® and AT&T |DIRECTV brands. The company’s suite of IP-based business communications services is one of the most advanced in the world. In domestic markets, AT&T Advertising Solutions and AT&T Interactive are known for their leadership in local search and advertising.”
AT&T Inc: A Dividend Champion with 28 Consecutive Years of Dividend Increases
Learning from the Past – Looking at Earnings Only
Since dividends are paid out of earnings, a clear perspective of a company’s historical earnings growth record is a vital component of a dividend investor’s prudent due diligence process. The following graph plots AT&T Inc’s earnings per share since 1998. A quick glance to the right of the graph shows that AT&T Inc has increased earnings at a compounded rate of 1.4%% (see purple circle on graph) per annum.
Earnings Determine Market Price and Dividend Income: The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings to both price movement and dividend income. The earnings growth rate line or True Worth ™ line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.
Since dividends are paid out of earnings, and therefore represent additional return on top of what the market capitalizes earnings at, they are depicted by the light blue shaded area and stacked on top of the earnings line. Therefore, a quick visual of these two important components is simultaneously revealed:
1. The additional return that dividend paying stocks provide.
2. The percentage of earnings paid to shareholders as dividends (payout ratio).
The value in this article is through carefully analyzing the earnings and price correlated fundamentally based graphs. Notice that one glance tells you how well the company has performed on an operating basis historically and how the market valued that historical performance. Therefore, the reader is free to discover whether or not current valuations make sense based on historical norms coupled with fundamental values. Instead of opinion, this article is designed to produce facts that can be analyzed to the readers investing benefit.
Performance Table: Capital Appreciation and Dividend Income AT&T Inc
The associated performance results, with the earnings and price correlated graph, validates the above discussion regarding the two components of total return: Capital appreciation and dividend income. Dividends are included in the total return calculation and are assumed paid, but not reinvested.
When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident. In addition to the -0.8% capital appreciation (Closing Annualized ROR), long-term shareholders of AT&T Inc would have received an additional $49,908.49 in dividends that increased their total return from -0.8% to 2.3% per annum.
(Note: Since this is a Dividend Champion it has raised its dividend every year for at least 25 years, therefore, negative dividend growth rates shown, if any, will be attributed to special additional dividends paid in excess of the company’s regularly reported dividend rate)
The following graph plots the historically normal PE ratio (the dark blue line) correlated with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is as low as it has been since 1998.
A further indication of valuation can be seen by examining a company’s current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for AT&T Inc is 1.52, which is historically low.
Looking to the Future
Extensive research has provided a preponderance of conclusive evidence that future long-term returns, and the dividend and its growth rate are a function of two critical determinants:
1. The rate of change (growth rate) of the company’s earnings
2. The price or valuation you pay to buy those earnings
Therefore, forecasting future earnings growth, bought at sound valuations, is the key to safe, sound, and profitable performance.
Therefore, it logically follows that measuring performance without simultaneously measuring valuation is a job half done. At its current price, which is attractively aligned with its True Worth™ valuation, AT&T Inc represents a potential opportunity to invest in a Dividend Champion at a reasonable price. The important factor is that AT&T Inc has real assets and cash flow underpinning its stock price. This solid economic foundation offers shareholders the potential for both a strong margin of safety and an opportunity for an increasing dividend income stream and