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The last time I wrote about AT&T Inc. (NYSE:T) I stated, "…the stock seems interesting again at these levels…" Since the last article it dropped 2.26% versus the 1.49% gain the S&P 500 (NYSEARCA:SPY) posted. AT&T is a provider of telecommunications services in the U.S. and worldwide.

On January 28, 2014, the company reported fourth quarter earnings of $0.53 per share, which beat the consensus of analysts' estimates by $0.03. In the past year the company's stock is down 6.61% excluding dividends (down 1.48% including dividends), and is losing to the S&P 500, which has gained 19.85% 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 9.69, which is inexpensively 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 1-year forward-looking P/E ratio of 11.84 is currently inexpensively priced for the future in terms of the right here, right now. The forward P/E value that is higher than the trailing twelve month P/E value tells us the story of earnings contraction in the next year. Next year's estimated earnings are $2.78 per share while the trailing twelve month earnings per share were $3.40. Next year's estimated earnings are $2.78 per share and I'd consider the stock inexpensive until about $42. The 1-year PEG ratio (1.98), 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 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 4.9%. 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

13Feb14

32.92

9.69

11.84

2.78

42

1.98

4.90

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 5.59% with a payout ratio of 54% of trailing 12-month earnings while sporting return on assets, equity and investment values of 6.7%, 20.8% and 12.8%, 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 5.59% 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

13Feb14

5.59

54

6.7

20.8

12.8

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock bouncing off of oversold territory back at the beginning of February with a current value of 46.53. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line has just crossed above the red line with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($32.92), I'm looking at $33.39 to act as resistance and the $31.94 to act as support for a risk/reward ratio which plays out to be -2.98% to 1.43%.

Conclusion

I'm beginning to change my tune on the company now that I see an earnings contraction from the trailing twelve months to 2015. Fundamentally the company is inexpensively priced based on future earnings and fairly valued on future growth potential. Financially the dividend is secure and is a high-yielder. On a technical basis I believe there is some bullish momentum. Due to the bullish technicals, secure dividend, and increasing financial metrics I'd normally be pulling the trigger on a very small batch of this particular name right now; however, due to the earnings contraction coming next year I'm likely to sell out of my position shortly but am conflicted about it. I don't like to see earnings contractions whatsoever. Because I swapped out Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) for AT&T in my dividend portfolio it is only fair that I provide an update from the swap-out date. From August 20, 2013, AT&T is down 3.14% while Cracker Barrel is down 1.65%. The trade swap-out has not worked out so far as AT&T has lagged the entire market.

(click to enlarge)

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: It May Be Time To Sell Out Of High-Yielding AT&T