Hey YouTube. I'm Jimmy
in this video.
I want to walk through my analysis of the AT&T
ticker symbol T.
AT&T has been a great dividend
payer for many years
and I wanted to try to take a closer look
at AT&T to see if it's worth
adding to our dividend portfolio
that we're working on in our Dow 30
analysis.
So here's how AT&T segments their business
their largest segment is Business Solutions.
You could break that down further by
looking at wireless business solution
Wired Business Solutions Strategic
Services.
They have equipment things like that
and then we have entertainment
and internet services here.
AT&T offers high speed Internet
landline voice
and data services equipment sales
and rental.
Then the video entertainment is things like their
satellite video streaming options
they have video on demand they have their own
Direct TV.
Things like that they have over 25 million subscribers
on their platform
but we'll come back to that in a minute.
Then the next largest segment is consumer
mobility.
This is their traditional wireless
business
and all the equipment sales that goes
goes along with that business.
Then they have their international business.
That's a small segment they do about
5 percent of revenue they did about 5 percent in 2017.
So they're fairly small.
Now this is a chart of revenue
and as we could see revenue has been fairly
decent
and it had a nice pop back in 2016
and 2015 after they
bought direct TV in July of 2015.
That was a nice contributor to revenue early
on.
Now we can also tell by the green bars
that analysts are expecting revenue to climb
over the next few years which is a good thing
for AT&T stock.
Now if we switch to earnings per share
or we can see that earnings per share has
been struggling a bit compared to
the revenue chart
but it's expected to have a nice
jump going out the next few years
and we could see that that jump has already started.
The dark blue line that dark blue line
is three quarters of 2018
and one quarter 2017.
So we can see that they're already heading in
the right direction as far as earnings per share
go. So now the question is
is AT&T worth buying now.
So one key piece of news for AT&T right now
is their pending acquisition of
Time Warner
and in early 2018 AT&T announced
the acquisition of Time Warner Time Warner controls
things like Warner Brothers HBO
Turner Broadcasting
and things like that.
If AT&T were to get the
content that Time Warner has
the theory is that you put AT&T
s distribution network behind
that content
and you end up with something very powerful.
Well since the announcement of the merger the Department
of Justice is trying to block it.
So back in early December just last month
that had oral arguments in front of the courts
and the consensus was that the
arguments went fairly well for AT&T
and Time Warner.
So that's a good thing from a business perspective
because this could really help their business
in the long run.
So I think we could put that to the side for
now. We have to see what happens
with that. So now let's look at their financials.
So we already saw their annual numbers.
But let's look a bit closer at the quarterly numbers.
So this is AT&T is quarterly
earnings per share
and as we could see it's a bit volatile
but as you can tell it's heading in the right
direction because generally
what we want to do is we want to compare
quarter to quarter.
So Q4 of 2016
compared to Q4
or 2017 it looks like
there was a slight improvement.
Q1 to Q1 good improvement
Q2 to Q2.
Another improvement Q3 to Q3
looks pretty good as well.
And if we believe analysts projections
it looks like that trend should continue.
Now this brings us to a mistake I made in a
recent video.
I just wanted to point it out here.
So this chart here
this is the same chart of earnings per share
except the orange lines are
GAAP GAAP is generally accepted accounting
principles.
The orange lines are the way that the company
is required to reported according
to US law.
The blue lines are adjustments made
by analysts
and sometimes the company will make these
adjustments as well.
In AT&T's case they made some
adjustments although analysts made
additional adjustments on top of that.
While in a recent video I did called Top
Five dividend stocks for 2019.
There's a link in the description below.
If you're interested.
Well AT&T was one of those stocks
in that video.
And when I calculated the coverage ratio
what I did was I took the earnings per share
from twenty seventeen
and I divided it by the dividends
paid out in twenty seventeen to
calculate the coverage ratio.
That's a good way of doing it
but the mistake I made was I took
the GAAP earnings as announced
by the company
and use that in
the coverage ratio.
That was a mistake.
So the reason for the huge difference between
GAAP earnings and adjusted earnings per share in
Q4 2017 were mostly
related to the tax changes heading
into 2018
and some accounting adjustments that AT&T
hade made. Now the key point
for us to consider when trying to decide
whether we should use GAAP
earnings or adjusted earnings is to
consider whether or not the adjustment
is going to stick around.
In the case of late in the case of AT&T
they came right out
and said it wasn't going to stick
around it was going to be a one time change
due to the tax law changes now.
For me I felt a bit foolish about this
because what I did is I blindly went
in and took the GAAP numbers when
I should have taken the adjusted numbers.
So I bring this out so we can get a proper
look at AT&T is dividend
and then we can see if AT&T stock
is worth buying either for the dividend
or for any other reason.
But this time
with more appropriate numbers now.
One final point before we leave this chart I
just want to point out.
Sure this is obvious to many people
but I just want to point out that adjustments
don't always have to be down.
You can see that in both Q1
and Q2 earnings
were adjusted higher
and that's actually half the reason
I feel so foolish because
I almost always use adjusted
earnings. Very rarely do I believe
that we should use GAAP earnings generally
adjusted as the most appropriate way to do
it so.
For that I apologize.
OK moving back to the adjusted earnings per share.
When we add dividends per share well we
can see that dividends are fairly steady
and overall earnings cover
dividends in most quarters
but frankly quarterly is probably
a bit too short sighted for this type of
analysis.
So when we jumped back to annual earnings
per share and then we add annual
dividends per share we can see
that dividends per share are covered
by earnings in every year
going back to 2011
where they earned exactly what they paid
out. Now this brings us to their dividend history.
This is a chart of their trailing 12 month
dividend history going back to
2000.
And as we can see they have consistently
increased their dividend since about 2004.
And then if we switch to this chart this
is their dividend yield.
And if we overlay the price
just so we could see how that compares to it
we get exactly what we might expect.
The lines move in opposite directions
because as we know when price
goes up well the dividend will go
lower. So if the price is falling
well the dividend yield will go higher
assuming that they keep the dividend
the same
or increase it.
So here are some key stats regarding the dividend.
Currently the dividend yield is about
6.5% which as we saw
and their yield chart is relatively
high compared to their own history.
Now their one year dividend growth
rate is 2.03%.
Their three year growth rate
is 2.07%
and their five year growth rate is 2.12%.
Now just to be clear this is the
dividend growth rate on an annual basis.
So one year is simple enough it's an
annual number three year
is an average of two point zero
seven percent five years an average
of two point one two percent per
year. And this is important because
as long as they increase their dividends by
a fixed rate well
their dividend growth rate is going to gradually
get lower and lower.
So as we could see in this chart
this is a chart of their dividends going back
by quarter to 2008.
They've increased their dividends by one penny
every four quarters.
So their next quarter is expected to be
51 cents
and it's expected to stay there for a total
of four quarters.
So three more quarters
and the year after that you guessed it
probably fifty two cents.
Now the good news for us potential investors is
that earnings per share is expected to keep growing
and I assume that
AT&T management will continue to strive
to grow both their top line
and their bottom line as quickly as they can.
This is pretty evident
with the time warner acquisition
and if dividends continue to crawl
along at 2 percent growth
while suddenly the five year compounded
annual growth rate of four
and a half percent for revenue
looks pretty good.
It also tells us that if revenue continues
to grow at a faster rate than dividends
will then perhaps one day management
could increase the rate of dividend growth
or maybe they just do a one time jump
in dividends
or perhaps instead of letting
the growth rate of dividends gradually
decline maybe they put a floor on it maybe
they say we're not gonna let it fall less than 2
percent and once it gets the 2 percent
growth every year
or every quarter however they want to do it every
year they're going to increase dividends by 2
percent. Leave it there for four quarters
and just fix it at 2 percent.
So there is a couple of things that management could do that would
make this more interesting from a dividend
perspective.
Any of those scenarios work out well in my mind.
And given how high the dividend yield is
right now I'm a big fan of AT&T
stock especially for the dividend
portfolio.
But what do you think.
Do you like AT&T stock do you
think that AT&T is something that belongs
in our dividend portfolio.
Let me know what you think in the comments below.
And thank you for sticking
with me all the way to the end of the video.
They haven't done so already hit the subscribe
button and I'll see in the next video.