Monday, September 28, 2015

Recent Buy: T



Ok so I lied about not buying anymore until the government shutdown...

On September 28, 2015, I bought 32 shares of AT&T (T) at 31.99/share. Total cost and fees equal $1030.68. I scanned through my portfolio vs the market and found this gem. My cost basis before this buy was $34.50. Now it’s $33.75. If possible I would like to own 100 shares by the end of the year. This buy increased my 12 months dividend by $60.16.

Fundamentals

  1. T is currently trading at a PE (ttm) of 31.65. This seems outrageous but you have to remember that T just bought DirectTV. All DirectTV owners received shares of T but the profitability of DirectTV was not added to T's balance book. What you have here is earnings not added to T and more shareholders which creates this strange looking PE.
    1. T's forward PE is 11.55 which is less than their historic 14 PE.

  1. Dividend growth rate of 1 cents per share or 1-2% per year.

  1. PEG is 0.2x. I know some of you love your pegs.

  1. Price to book is 1.9x.

  1. Yield of 5.82%.

  1. Fair Value
    1. Simply Wall Street based on future cash flow: $46.80 (32% discount)
    2. Yahoo finance one year price: $37.00 ($5 discount)
    3. S&P capital 4 stars buy fair value: 32.50 ($0.50 discount)
    4. S&P capital one year price: $39 ($7 discount)
    5. Asking the SA crew
      1. $34.00 SA article 1
      2. $37.66 SA article 2
Rationale:

So why on earth would I buy a company during a pricing war with VZ, S, and TMUS...and the whole stock market crashing.

  1. Rational #1: My financial Adviser told me to buy some bonds...so I bought T
    1. That was a joke. T is not a bond. No matter what anyone tells you. T is a common share of a huge corporation but I see this 5.8% cheaper and safer than said...Detroit, Philly, Washington DC, Chicago, or all of California Munibonds. (on a side note some of these munibonds are crazy. I saw one on my Edward Jones account with a 8% yield but BB- by Moody).    

  1. Rational #2: DirectTV.
    1. You probably read a billion articles on the merger. Here's something fun from T's CFO last meeting
      1. 21 million wireless customers that don't have DirecTV.
      2. 15 million DirecTV customers that don't have wireless.
      3. 3 million DirecTV customers that don't have broadband product.
      4. 57 million broadband platform previously without a video offering from AT&T.

  1. Rational #3: AT&T Mexico/South America
    1. T will spend 3 billion dollars in Mexico. The project profit will be
      1. 40 million new customers by end of 2015.
      2. 75 million new customers by 2016.
      3. 100 million new customers by 2018.

  1. Rational #4: The Internet of Things (IOT)
    1. This is a very sophisticated subject. What is IOT? Basically taking anything electronic and shoving it into the cloud or internet or whatever you want to call it. I personally call it the Al Gore machine.
    2. You might have already seen some of T's IOT. Many new Chevy cars have internet in them. This internet is provided to you via T!
    3. The IOT market is currently a $656 billion dollar market and will grow to $1.7 trillion in 2020.

Risk:

Every company has risks. There is no such thing as a risk free stock.

  1. High Debt: I mean really really high debt. T is going on an infrastructure building spree and using debt+ majority of free cash to pay for its expedition. T is the boring-est riskiest telecommunication company.

  1. Forex: T expects a large part of its future revenue to come from mexico. Pesos vs dollars forex.

  1. Competition: S, VZ, TMUS, everyone else in the world.

  1. Technology: Land lines are dead and cell phones are on its way. T still receives a large part of its revenue from cell phone bills. T is diversifying but will it be fast enough?

  1. DirectTV synergy: Will DirectTV produce the income T is expecting? Who knows.

My forward 12 months dividend currently stands at $2,022.60 + FCISX distribution. Portfolio updated.

*Again I’m not an expert and you should not buy based on my opinions. Here is a FAST Graph I stole from SA.


6 comments:

  1. Nice choice, I bought more T myself at $32 even.

    ReplyDelete
    Replies
    1. hi DC.

      I'm really liking T at these prices. I'm going to flip as much as I can before the next ex-date. thanks for visiting

      Delete
  2. Plus, being a cash cow doesn't hurt either.
    D4s

    ReplyDelete
    Replies
    1. hi D4s,

      I agree. Nothing like a fat cow to feed the coffers. thanks for visiting

      Delete
  3. Nice buy grabbing shares under $32.00. We own shares of AT&T in both our family's dividend stock portfolio and our Edward Jones account. Great company if you are looking for consistent and reliable high yield. Keep up the progress.

    Best wishes on your personal journey. AFFJ

    ReplyDelete
    Replies
    1. hi AFFJ,

      I love T. It's the ultimate blue chip in an unsteady market. thanks for visiting

      Delete