AT&T - Dividend Analysis

AT&T, Inc. (T) provides telecommunications services to consumers and businesses in the United States and internationally. It provides wireless services, including local wireless communications, long-distance, and roaming services with various postpaid and prepaid service plans.

AT&T is not a dividend aristocrat yet, but a dividend achiever as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 24 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 5.00 % to its shareholders.

 

At the same time, the company has had a 0.50% average annual decrease in its EPS since 1998. In fact the diluted earnings per share of $1.94 in 2007 were nine cents lower than the diluted earnings per share in 1998.

 

 

The ROE has remained in a steady decline falling to about 10% in 2007 which is significantly lower than the 30% mark for this indicator in 1998.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual dividend payments have increased over the past 10 years by an average of 4.80% annually, which might be unsustainable due to the lack of growth in profits over the past decade. A five percent growth in dividends translates into the dividend payment doubling almost every fourteen to fifteen years. If we look at historical data the quarterly payment of $0.355 from 2007 was double what AT&T paid in 1991 as a quarterly dividend.

 

 

If we invested $100,000 in T on December 31, 1997 we would have bought 2730 shares (Adjusted for a 2:1 stock split in 1998). In January 1998 your quarterly dividend income would have been $611.52. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1368.17 by October 2007 and over $1570 most recently. For a period of 10 years, your quarterly dividend income has increased by 59 %. If you reinvested it though, your quarterly dividend income would have increased by 124%.

 

 

 

The dividend payout has increased steadily during our study period and broken above 70%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

 

 

 

 

 

Although T has a low price/earnings multiple of 16 and above average dividend yield I would think twice before entering a position there. The decline in ROE and EPS is warning sign for me, as is the steady increase in the DPR. Without any future growth in EPS, the company would be unable to maintain its current dividend policy of rewarding shareholder with future dividend increases. The only appealing thing right now is the high dividend yield of 5%.

Disclosure: I do not own shares of T

Comments

[bvictor33:]

great article

2008 Jul 07 12:10 PM

[optical amp...:]

The author fails to point to the 5:1 reverse split in 2002 following the spin off of wireless and selling of broadband to Comcast. How soon we forget!!!!! I do not see this factored into the information provided. Whereas this reverse split does not effect the overall value of the company...it does lower the number of shares and therefore the amount of dividend!

2008 Jul 07 12:50 PM

[optical amp...:]

What the article fails to mention is the 5:1 split in 2002. Whereas the value of the company did not change, the impact on shareholders and the dividends on reduced shares DID!

2008 Jul 07 12:51 PM

[DM32:]

I use Valueline and cannot confirm the EPS, DPR and ROE numbers that you presented. According to VL, the EPS has been steadily increasing since 2004 after peaking in 2001 and declining in 2002 an 2003. The 2007 EPS number of
$2. 76 is also calculated on outstanding shares of 6B vs. 3.9B in 2006. DPR has steadily declined from an unsustainable high of 90% in 2003 to a very manageable 51% in 2007. Likewise, ROE, while well under historical late 90s and early 2000 levels was 14.8% in 2007, up from 7.8% in 2006. What source did you use for your numbers?

2008 Jul 07 01:07 PM

[Dividend Gr...:]

Optical amplifier - my data sources do not confirm a reverse split in 2002. Where are you getting this data from?

Washaway, I did compate my data source to VL, and yes there are differences. I also compared Google finance for the EPS, and it is different than Value Line. Could you please post a link to Value Line's data?

2008 Jul 07 03:14 PM

[Flagman:]

Bring back Ed Whitacre, PLEASE!

2008 Jul 07 03:14 PM

[Flagman:]

Bring back Ed Whitacre, PLEASE!

2008 Jul 07 03:15 PM

[TurboCat:]

How can this company keep achieving such good profits, but still keep decreasing it's share price?

2008 Jul 07 03:46 PM

[DM32:]

Dividend Growth Investor: Valueline requires a subscription, but most public libraries have hard copies in the reference section. I tried to embed the report in this post but it didn't work out. The report that I referenced was from June 27. All the actual data from 1992 - 2007 and estimated 2008 and 2009 is laid out in a single page format.

2008 Jul 07 04:12 PM

[optical amp...:]

Dividend Growth Investor

money.cnn.com/2002/11/...

AT&T: A $25 stock

Long-distance provider's reverse split gives share price a new look Tuesday. November 19, 2002: 11:35 AM EST

NEW YORK (CNN/Money) - A one-for-five reverse stock split propelled shares of AT&T to $25 Tuesday as the company returned to its long-distance phone service roots a day after officially shedding its cable assets.

2008 Jul 07 04:59 PM

[DM32:]

Its important to remember that the current AT & T is actually the former SBC, which adopted the name after buying AT & T and Cingular (formerly AT&T Wireless) in separate transactions. It was the original AT&T that spun the cable assets, the wireless business, Lucent and other businesses. Very confusing and probably why the original AT&T no longer exists.

2008 Jul 07 05:21 PM

[DM32:]

PS -- it was also the original AT&T that did the reverse stock split.

2008 Jul 07 05:22 PM

[Umm, yeah:]

In addition, don't forget that the former Bell South is also part of today's AT&T.

2008 Jul 08 08:25 AM

[Dividend Gr...:]

Dividend Cop,

You are correct that the ATT that I am analyzing is the former SBC. The main source that I used was morningstar.

2008 Jul 08 09:03 AM