Just last week we received a nice chunk of change from AT&T (NYSE:T) amounting to $109.23 (227.57 shares X 48 cents per share) which we used to buy more shares of T with per our DRIP setup. As you can recall, there aren’t any other stocks to choose from that meet our criteria in the telecommunications sector so AT&T is it. Historically AT&T has been thought of as a high yield stock which paid upwards of 5% but these days that yield has come down to a 5-year low of about 4.46%. This is because the stock has been on a tear gaining +24% since the beginning of this year.
One reason for the high yield on offer from AT&T is that the dividend growth prospects aren’t very promising. The last 6 dividend raises have been just a single penny which gives you a growth trajectory which is always diminishing as seen below:
- 2016 – 2.08%
- 2015 – 2.13%
- 2014 – 2.17%
- 2013 – 2.22%
- 2012 – 2.27%
- 2011 – 2.33%
- 2010 – 2.38%
So at this pace, we can expect the next 5 years in dividend growth to be something like this:
- 2017 – Growth = 2.04% | Yield = 4.55%
- 2018 – Growth = 2.00% | Yield = 4.64%
- 2019 – Growth = 1.96% | Yield = 4.73%
- 2020 – Growth = 1.92% | Yield = 4.82%
- 2021 – Growth = 1.89% | Yield = 4.92%
So after 5 years of mediocre dividend growth, we’re still just shy of hitting that 5% dividend again. Is there any hope that AT&T might look to raise their dividend more than just the usual penny? The odds don’t seem to be in favor of any surprise growth for a few reasons. Firstly, their payout ratio has historically been quite high and in recent years has exceeded 100% which means they didn’t make enough profits to cover their dividend. 10-year growth for the AT&T dividend has also been quite low at just 3.7%.
At the moment we’re sitting on a position in T which has a present value of around $9,821 which is about 74% of our target position size of $13,333. We’re presently investing $190 a month in T and will continue doing so for the next 2 years. As we mentioned in our July portfolio update, we’re getting nervous with the market hitting all-time highs regularly and the coming U.S. presidential elections. We have a fair amount of skin in the game already so we’re going to cut back on our purchases momentarily. The cash position we’re sitting on isn’t in any danger of going anywhere and we’re happy to wait a bit and see if the market corrects. With that thought in mind, we’re going to suspend our investments in AT&T for the time being. If the market goes up, we’re happy because we’re making capital gains. If it goes down, we’re happy because we can resume buying.