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.
- 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.
- T's forward PE is 11.55 which is less than their historic 14 PE.
- Dividend growth rate of 1 cents per share or 1-2% per year.
- PEG is 0.2x. I know some of you love your pegs.
- Price to book is 1.9x.
- Yield of 5.82%.
- Fair Value
So why on earth would I buy a company during a pricing war with VZ, S, and TMUS...and the whole stock market crashing.
- Rational #1: My financial Adviser told me to buy some bonds...so I bought T
- 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).
- Rational #2: DirectTV.
- You probably read a billion articles on the merger. Here's something fun from T's CFO last meeting
- 21 million wireless customers that don't have DirecTV.
- 15 million DirecTV customers that don't have wireless.
- 3 million DirecTV customers that don't have broadband product.
- 57 million broadband platform previously without a video offering from AT&T.
- Rational #3: AT&T Mexico/South America
- T will spend 3 billion dollars in Mexico. The project profit will be
- 40 million new customers by end of 2015.
- 75 million new customers by 2016.
- 100 million new customers by 2018.
- Rational #4: The Internet of Things (IOT)
- 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.
- 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!
- The IOT market is currently a $656 billion dollar market and will grow to $1.7 trillion in 2020.
Every company has risks. There is no such thing as a risk free stock.
- 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.
- Forex: T expects a large part of its future revenue to come from mexico. Pesos vs dollars forex.
- Competition: S, VZ, TMUS, everyone else in the world.
- 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?
- 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.