Linked here is a detailed quantitative analysis of AT&T Inc. (T). Below are some highlights from the above linked analysis:Company Description: AT&T Inc. (formerly SBC Communications) provides telephone and broadband service, and the company holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
T is trading at a discount to 1.) and 3.) above. Since T’s tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 6.9% discount to its calculated fair value of $26.52. T earned a Star in this section since it is trading at a fair value.
Dividend Analytical data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
T earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. T earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1984 and has increased its dividend payments for 27 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to > MMA
T earned a Star in this section for its NPV MMA Diff. of the $1,737. This amount is in excess of the $800 target I look for in a stock that has increased dividends as long as T has. The stock’s current yield of 6.8% exceeds the 4.02% estimated 20-year average MMA rate.
Other: T is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index.
Conclusion: T earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks T as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $32.25 before T’s NPV MMA Differential decreased to the $800 minimum that I look for in a stock with 27 years of consecutive dividend increases. At that price the stock would yield 5.21%.Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $800 NPV MMA Differential, the calculated rate is -0.6%. This negative dividend growth rate is less than the 2.4% used in this analysis, thus providing a margin of safety. T has a risk rating of 1.25 which classifies it as a low risk stock.
In spite of a poor economy, T has performed well over the past year. The iPhone has provided gains in consumer wireless and should continue to do so near-term. Declines in landlines will continue to pressure T, but gains in consumer wireless and broadband should help to offset these. The company has a strong balance sheet and generates good free cash flow. I will continue to strategically increase my position in T when it is trading below my buy price of $26.52 and as my allocation allows.
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