Recent Buy (2)
Purchases for my FI Portfolio have been few and far between the last few years. That's not for lack of opportunities or desire rather it had to do with our lives being on a roller coaster. However, there's a light at the end of the tunnel as our main goal for this year is to get rid of all non-mortgage debt and then refocus our energy towards building up the portfolio.
We aren't contributing fresh capital to our investments just yet as we're focused on getting rid of our non-mortgage debt. *Should be gone before the end of the year!* However, that doesn't mean that we're not able to make new purchases thanks to the dividends that keep rolling in from our other positions.
One of my goals for my FI Portfolio is to build up the positions rather than build out the number of positions. Essentially I want to get more exposure to the companies that I own instead of many small positions that make it hard to be motivated to monitor the company. With the dividend growth strategy I still think it's fine since the bulk of the work should be done upfront; however, why invest more capital into your 20th or 30th best idea if one of the top 10 is attractively valued?
After making some sales in December and combining that with cash dividends that had been received I was looking forward to getting some of that cash working for me once again.
On January 30th I added to my position in AT&T (T). I purchased 40 shares at $30.00 per share. The total cost basis, including commission, came to $1,204.95 or $30.12 per share.
AT&T is a Dividend Champion with 35 consecutive years of dividend increases. Based on the current quarterly dividend payment of $0.51 per share my YOC for this lot is 6.77% and I can expect to receive $81.60 in dividends over the next year.
This brings my total position in AT&T up to 94.246 shares at an average cost of $30.86 per share. The YOC for my AT&T position increased to 6.61%.
Due to this purchase my FI Portfolio's forward 12-month dividends are $6,695.47.
As a dividend growth investor any potential investment must Jerry Maguire me, i.e. "SHOW ME THE MONEEEEEEYYYY!!!!". I judge that based on a company's history of both paying and growing dividends to shareholders. As I mentioned earlier, AT&T has increased dividend payments for 35 consecutive years.
I like to examine the dividend growth rates over varying time periods. Since many businesses see their operations ebb and flow this smooths out the dividend growth and can give an idea of how things could look in the future across the entirety of a business cycle.
The 1-, 3-, 5- and 10-year rolling dividend growth rates can be found in the chart below.
Similar to my earlier purchase of Altria, AT&T just seems too damn cheap at these levels to pass up. Don't get me wrong there's still a lot of moving parts with AT&T including integrating the Time Warner media, growing ad sales and most importantly reducing the debt on the balance sheet all of that in the face of declining legacy wired services and slowing wireless accounts. That being said there's a lot to like here and in their Q4 earnings release last week AT&T had record levels of free cash flow even with record capital expenses so the dividend is still very well covered. Looking out to 2019 AT&T is expecting record levels of free cash flow once more although debt reduction is the priority at this time instead of dividend growth.
The dividend yield is up near 7% so you're well compensated to wait it out while the company figures things out, especially with the dividend being quite safe. Although dividend growth is still likely to just inch forward by $0.01 per share per quarter for 2019. The forward P/E ratio is just 8.2x so even just a reversion to a 10x-12x multiple can provide excellent returns.
I was originally targeting a 7% yield for a purchase of AT&T, but impatience got the better of me. Although I still can't complain about the 6.77% YOC for this lot of shares. The next area where I'd likely add more shares is somewhere around $26-28.
What do you think of my purchase of AT&T? Did you pick up any shares on the dip around a 7% dividend yield?