I read an article today which had a title that seemed a bit harsh about retirees avoiding AT&T (T) and its 4.7% dividend yield. To be honest, the title was far worse than the article. That being said, it is my very firm opinion that a retiree who currently owns AT&T, or might even be waiting for a pullback to add it to their core holdings, should NOT avoid AT&T.
I have written quite often about AT&T and it happens to be my 2012 stock pick of the year. I will not re-hash the supportive points I have made for about 8 months now, but will focus on the now, and why AT&T is very solid and should be considered for just about anyone's portfolio, especially those of us who are retired.
Increasing dividends year after year is the cornerstone of any true dividend paying winner. AT&T has been doing that year after year after year. They have increased dividends for 28 consecutive years! They will have to rip the AT&T stock certificates from my cold, dead hands, before I sell it all!
Avoid it? Not a chance.
Back in 2008 the share price was about $42.00/share and today it is about $37.45/share. To me, the price is not near its top yet, especially with the dramatic increase in earnings for this last quarter of 8.7%.
Even though revenues decreased (as many great companies faced this quarter), and cash reserves declined, AT&T did not just stand still. They continued to give shareholder value by announcing another $11 billion dollar share buy back in addition to what they have currently repurchased (145 million shares). That amounts to over 300 million shares that will be taken off the open market, or about 5% of shares outstanding.
They were able to do this because of their 8.7% increase in profits!
Avoid AT&T? Not a chance.
Other actions just taken was the reduction in prices of some of their smartphones. As this article notes:
AT&T is expected to slice the price of HTC's One X Smartphone on Monday following poor sales and unstable economic conditions. The regularly $199 priced device will now retail for just $99, contract included.
According to DigiTimes, HTC is only expected to ship nine million phones in its third quarter (to be discussed on August 3 when the company reveals guidance). As revenues approach just over $2.66 billion, AT&T may have decided that marking the phone down by half of its original cost could be just the key to boosting revenues in future quarters.
AT&T recently reduced the price of their 16 GB Samsung Galaxy S III 4G Android smartphone to approximately $149 with a standard new two-year activation and data plan at select retailers."
You can read the entire article right here.
So this tells me quite clearly, that AT&T is not sitting on its hands and just accepting lower revenues. The company is doing something to balance everything out. Riding that line between margin growth and revenue growth, is obviously the most challenging effort any company can take, and AT&T has thus far done a superb job of reducing expenses. I believe they will continue, especially with reducing "paybacks" to the likes of Apple (AAPL).
One final interesting article also notes the following:
AT&T , according to Barron's, is the pick over Verizon (NYSE: VZ) as the dividend play in the data and wireless area. The demand for wireless may not be good for our wallets, it's getting pricey out there, but it's great for AT&T.
Analysts see the industry coming down to two players, AT&T and Verizon, many of the small players have been bought up or forced out, and right now the edge is with AT&T.
Look for earnings to grow and increasing margins as demand for data increases, and everyone is looking for constantly increasing demand…
The stock is not likely to explode upward, but we do have a very nice defensive dividend play in AT&T.
Avoid AT&T? NOT A CHANCE!