Dividend Farming Scorecard: AT&T (T)

I’ve been farming dividends for several years.  One of my favorite dividend producers is AT&T (T).  AT&T has taken a lot of heat lately for its debt load and its general lack of market growth.  Consequently, I thought I’d review it to see if it should remain on the farm.

The table provides a snapshot of factors I’m scoring for T as of April 12, 2019.  Laying out my analysis helps me benchmark a holding or opportunity against target metrics.  It also allows me to quickly compare this firm to alternatives as part of my screening process.

FACTOR	METRICS	AT & T
CCC List	Champion	Champion
Current Yield	4.0%	6.45%
Company Profile	Red Flags?	Debt Load.
Industry Leadership	Top 10	#2
Market Cap	$10 B+	$233.9 B
P/E	< 20	11.3
P/B	< 2	1.3
Debt / Equity	< 1	1.8
Dividend History (Years)	25	35
12 Month Price Range	Lower Half	Upper Half
Dividend Payout Ratio	< 75%	70.5%
Portfolio Weight	Slightly Over	Slightly Over

CCC List: The DRIPinvesting.org web site provides the list of Champions, Contenders, and Challengers where I normally start.   (T) is a Dividend Champion with 35 straight years of dividend growth which is a great place to jump off.

Current Yield:  T’s yield is 6.45% which is more than 50% above my desired target.  Having a few dividend payers like this can help raise the average yield on the portfolio a few tenths of a percent reducing my time to double the dividend income stream.  Even better if the financial metrics don’t make it look like a risky, high yield holding.

Company Profile:  T is mostly known for delivering landline and wireless communication services.  However, it also owns DirecTV and WarnerMedia allowing it to provide content and streaming services.

Industry Leadership:  Investopedia lists T as the #2 communications company in the U.S. based upon customer count and market capitalization.

Market Capitalization:  At $233.9, T’s market cap provides considerable stability which reduces risk.

Price to Earnings:  The trailing P/E of 11.3 is well within my range indicating investors aren’t overpaying for T’s future income stream.

Price to Book:  The P/B ratio of 1.3 is solid.  While it’s great to find a bargain for which I’d pay pennies on the dollar, paying pennies over a dollar for something delivering a yield above 6% is something I can readily live with.

Debt to Equity:  Debt to equity is nearly double my target and the reason for the red flag.  It’s also one reason T may not be a Wall St. favorite.  On the bright side, T made significant debt payments in 2018 and indicated it will continue that trend in 2019.

Dividend History:  Growing dividends for 35 years is not an easy task, but T appears to be in position to continue that trend into the future.  This is an important factor for Dividend Farmers.

Price Range:  The price is in the upper half of its trailing 12-month (TTM) range.  The range is fairly small – about $9 and the price isn’t rich by any stretch.  As a result, being in the upper half, while not ideal, isn’t a show stopper.

Payout Ratio:  At 70.5% the payout ratio is approaching my 75% target ceiling.  For some investors this indicates little room for dividend growth, but at 6.45% I’m not really looking for more.  Besides, the firm has managed small increases for 35 years.  I see no reason it can’t continue with minor increases for several years to come.

Portfolio Distribution:  T is a substantial holding in my basket.  Whether or not I’ll add more as investment funds become available is questionable.  While I like (T) I don’t want to go far overweight, particularly when other sectors of my portfolio are currently light.

Analysis  

Of the companies reviewed the past several months (T) has scored well across the board – better than the rest.  Although the debt load is higher than desired, it’s still manageable and the firm is working to bring it down further.  Given other, healthy metrics, (T) would be a solid add if I didn’t already have plenty in my kit.  I won’t be selling it any time soon while allowing the dividend stream to continue compounding.  At 6.45% the position will double in just over 11 years if it continues.  Knowing that helps this Dividend Farmer reach F.I.R.E – Financial Independence, Rest Easy.

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.