Monday, July 7, 2008

AT&T (T) Dividend Analysis

AT&T, Inc. provides telecommunications services to consumers and businesses in the United States and internationally. It provides wireless services, including local wireless communications, long-distance, and roaming services with various postpaid and prepaid service plans.

AT&T is not a dividend aristocrat yet, but a dividend achiever as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 24 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 5.00 % to its shareholders.














At the same time company has had a 0.50% average annual decrease in its EPS since 1998. In fact the diluted earnings per share of $1.94 in 2007 were nine cents lower than the diluted earnings per share in 1998.















The ROE has remained in a steady decline falling to about 10% in 2007 which is significantly lower than the 30% mark for this indicator in 1998.

Annual dividend payments have increased over the past 10 years by an average of 4.80% annually, which might be unsustainable due to the lack of growth in profits over the past decade. A five percent growth in dividends translates into the dividend payment doubling almost every fourteen to fifteen years. If we look at historical data the quarterly payment of $0.355 from 2007 was double what AT&T paid in 1991 as a quarterly dividend.















If we invested $100,000 in T on December 31, 1997 we would have bought 2730 shares (Adjusted for a 2:1 stock split in 1998). In January 1998 your quarterly dividend income would have been $611.52. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1368.17 by October 2007 and over $1570 most recently. For a period of 10 years, your quarterly dividend income has increased by 59 %. If you reinvested it though, your quarterly dividend income would have increased by 124%.














The dividend payout has increased steadily during our study period and broken above 70%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.















Although T has a low price/earnings multiple of 16 and above average dividend yield I would think twice before entering a position there. The decline in ROE and EPS is warning sign for me, as is the steady increase in the DPR. Without any future growth in EPS, the company would be unable to maintain its current dividend policy of rewarding shareholder with future dividend increases. The only appealing thing right now is the high dividend yield of 5%.

Disclosure: I do not own shares of T

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2 comments:

  1. AT&T is a difficult stock to analyze given the number of acquisitions and spin offs over the time period you cover. For example, the EPS decline can be attributable to the the spin off of AT&T Wireless in 2001. Also, Comcast acquired AT&T Broadband in 2002. Then there was the acquisition of AT&T by SBC in 2005. SBC assumed the AT&T name.

    http://www.corp.att.com/history/milestones.html

    In the end though, I do like the analysis you have done and enjoy reading the individual company analysis you post.

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  2. David,

    Thanks for stopping by. Actually the company whose name is AT&T is actually the former SBC, which merged with AT&T in 2005, and later assumed the name of AT&T. Thus i do not think that it's as complicated as analyzing the old grandma bell :-)

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