Dividend Increase | AT&T (T)
|Getting a pay raise while sitting on the couch? Sign me up! Thanks AT&T for the dividend increase!|
That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends. You mean I get a pay raise just for owning a small piece of a company? Not going and doing R&D for new products or technology. Not selling any products. Not managing any employees or inventory. Not making sales calls. All I had to do was have the foresight to invest some of my savings in excellent companies.
On December 13th the Board of Directors at AT&T (T) approved an increase to the quarterly dividend payment. The dividend was increased from $0.51 up to $0.52 per share. That's just a 1.96% increase, but completely expected. AT&T is a Dividend Champion with 36 consecutive years of dividend increases. Shares currently yield 5.44% based on the new annualized payout.
The newly increased dividend will be payable on February 3rd to shareholders of record as of January 10th.
Since I own 99.496 shares of AT&T in my FI Portfolio, this raise increased my forward 12-month dividends by $3.98. I also own 111.542 shares in my Rollover IRA and my forward 12-month dividend for that account increased by $4.46. This is the 9th dividend increase I've received from AT&T since initiating a position back in 2011 and the organic dividend growth over that time comes to 21%.
A full screen version of this chart can be found here.
Of the 36 1-year periods during AT&T's streak annual dividend growth has ranged from 1.7% to 40.5%. The average of the the 1-year growth rates comes to 5.2% with a median of 3.9%.
Of the 32 rolling 5-year periods annualized dividend growth has ranged from 2.0% to 12.9% with an average of 4.4% and a median of 4.2%.
Of the 27 rolling 10-year periods annualized dividend growth has ranged from 2.2% to 8.4% with an average of 4.4% and a median of 4.5%.
AT&T hasn't exactly been a fast dividend grower since I purchased shares with each increase coming in around 2.0%. Of course I purchased shares for the juicy starting yield instead of their dividend growth potential. With a starting dividend yield typically in the 5-6% area it doesn't take much dividend growth to generate adequate returns.
The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1984 can be found in the following chart.
A full screen version of this chart can be found here.
For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.
AT&T' 5-year average forward dividend yield is 5.54% which corresponds to a share price of $37.55 based on the newly raised dividend. With a current yield of just 5.44% shares are currently trading near fair value.
I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%. That gives a fair value range of $34 - $42.
Analysts expect AT&T to have earnings of $3.54 for FY 2019 and $3.60 for FY 2020. The current price of $38.26 has shares valued at 10.8x and 10.6x forecasts, respectively. Using the EV/EBITDA multiple shares look attractively valued at 8.9x.
AT&T is also currently trading at a 9.6x TTM P/FCF ratio which represents a very attractive 10.4% FCF yield. Although due to the significant debt that AT&T carries it's EV/FCF ratio is 16.6x which represents a 6.0% FCF yield based on EV.
The return from an investment is comprised of 3 parts: growth in earnings + dividend yield + changes to valuation. Before accounting for valuation changes, AT&T could potentially produce 9.6% annualized returns.
This raise increased my forward dividends by $3.98 with me doing nothing. That's right, absolutely nothing to contribute to their operations. Based on my FI Portfolio's current yield of 2.86% this raise is like I invested an extra $139 in capital. Except that I didn't! One of the companies I own just decided to send more cash my way.
That's how you can eventually reach the crossover point where your dividends received exceed your expenses. That's DIVIDEND GROWTH INVESTING AT WORK! The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.
I've now received 48 raises in total for the companies in my FI Portfolio increasing my forward-12 month dividends by $320.93.
My FI Portfolio's forward-12 month dividends are $7,802.48. Including my FolioFirst portfolio's forward dividends of $101.17 brings my total taxable accounts dividends to $7,903.65. My Roth IRA's forward 12-month dividends are $642.62. My Rollover IRA's forward dividends increased to $2,350.56. Across all accounts I can expect to receive $10,896.83 in dividends over the next year.
We crossed into $7,900 in forward dividends for our taxable accounts and are very close to crossing into $10,900 for all of our accounts.
I've also started compiling dividend data on many of the companies that I own or would like to own. AT&T's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory. To see other companies that I've already gathered the data on you can check out the Dividend Companies page. Check it out and let me know what you think.
Do you own shares of AT&T? Do you think AT&T can get back to faster dividend growth once the balance sheet is cleaned up?
Please share your thoughts below.