Seeking Alpha
Recommended for you:
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

The last time I wrote about AT&T Inc. (NYSE:T) I stated, "I will layer into the stock right now because I can actually see it coming down to the $32 level." Since the last article it has gained 1.54% versus the 11.28% gain the S&P 500 (NYSEARCA:SPY) posted and never touched that $32 value I spoke about. AT&T is a provider of telecommunications services in the U.S. and worldwide.

On October 23, 2013, the company reported third-quarter earnings of $0.66 per share, which beat the consensus of analysts' estimates by $0.01. In the past year the company's stock is down 1.9% excluding dividends (up 0.55% including dividends) and is losing to the S&P 500, which has gained 25.16% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the technology sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 23.84, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the one-year forward-looking P/E ratio of 12.57 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.68 per share and I'd consider the stock inexpensive until about $40. The 1-year PEG ratio (2.94), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a one-year horizon) tells me that the company is expensively priced based on a 1-year EPS growth rate of 8.12%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

27Aug13

33.82

25.62

12.56

2.69

40

3.09

8.28

08Oct13

33.11

25.08

12.37

2.68

40

3.05

8.21

11Jan14

33.62

23.84

12.57

2.68

40

2.94

8.12

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 5.47% with a payout ratio of 130% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.7%, 8.5% and 6.2%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 5.47% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 30 years at a 5-year dividend growth rate of 2.4%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

27Aug13

5.32

135

2.7

8

6.2

08Oct13

5.44

136

2.7

8

6.2

11Jan14

5.47

130

2.7

8.5

6.2

Technicals

(click to enlarge)

Looking first at the relative strength index chart (RSI) at the top, I see the stock waffling around in middle-ground territory with a value of 38.66 and downward trajectory. I will look at the moving average convergence-divergence (MACD) chart next. I see that the black line just crossed below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($33.62), I'm looking at $34.23 to act as resistance and $32.55 to act as support for a risk/reward ratio which plays out to be -3.18% to 1.81%.

Recent News

  1. AT&T fires a shot across the bow of T-Mobile. The company is offering up to $250 in credit if they switch to AT&T and trade in their current smartphone.
  2. Frontier Communications (NASDAQ:FTR) purchases AT&T's Connecticut wireline business. AT&T will receive $2 billion in cash and assets for the deal.
  3. The company declared a quarterly dividend of $0.46 per share with an ex-date of Jan 8 and pay date of Feb. 3.

Conclusion

The market has moved considerably higher in the past year and if you want a safety play then I believe the defensiveness of AT&T is one stock to be in during the first quarter, especially since earnings season is encroaching on us. However, it looks as if the stock is beginning to diverge from the fundamentals of the company and I believe it may be a broken stock at this time. Fundamentally the company is inexpensively priced based on future earnings and expensive on future growth potential. Financially it pays a high dividend yield and I believe it can be increased minutely again in the future. Technically I see the stock moving downward from here. I'm going to avoid pulling the trigger here and wait to see how they report.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Is It Time To Purchase High Yielding AT&T?