AT&T Inc. (NYSE: T) may be thought of as a stodgy widows-and-orphans stock that doesn’t offer much prospect for an exciting return.
But how exciting is the idea of receiving more than six times your original investment back in aggregate dividends payments?
If you’re a fan of cash flow, that should get your wallet pretty excited.
AT&T Inc. is the second-largest U.S. wireless telecommunications company, serving over 100 million customers.
One can probably see how this could be a lucrative investment over the long haul. Millions of customers already use their services. Meanwhile, mobile data consumption is growing rapidly.
Additionally, AT&T is wrapping up its acquisition of DirecTV (DTV). Acquiring the largest satellite television provider in the U.S. will give AT&T access to a larger subscriber base. With many other services to offer, AT&T plans to bundle services and grow its revenue per subscriber. Of course, the deal also diversifies the revenues.
Their massive network gives AT&T competitive advantages as the business scales. It’s incredibly expensive and time consuming to build out a network large enough to service millions of customers in an efficient manner. That means that the major players have secured their position in the market.
For AT&T, the future looks bright. Meanwhile, the reported financial results show a past that’s not all that dim either.
Revenue is up from $40.8 billion in 2004 to $128.8 billion in 2013. That’s a compound annual growth rate of 13.6%. Of course, there were the game-changing acquisitions of SBC Communications and BellSouth during this time frame.
Not surprising, profits have also been growing nicely. Earnings per share increased from $1.50 to $3.39 during this period. That translates into a compound annual growth rate of 9.48%. Not so stodgy after all.
That growth has allowed the company to reward its shareholders.
The company has increased its dividend for the past 31 consecutive years. Based on its competitive position and future growth, it seems like AT&T will continue growing dividend payout for years to come.
The stock currently yields a monster 5.6% right now. The dividend appears to be safe, with plenty of cash flow to fund dividend payments. The current dividend payout ratio is just 57.7%.
The big dividend can provide a lot of income. Plus, the future dividend growth offers appeal for long-term investors. However, the best way to profit from AT&T is by reinvesting those dividends. Doing so over a long period of time can lead to truly dramatic results.
Consider what could happen if you invested in AT&T today, and held the stock for 30 years.
Let’s say you’re only able to pick up 50 shares in the company and invest $1,668. And that’s all you ever invest in this stock. Keep those shares tucked away under lock and key for a few decades and just let the dividends reinvest.
What would you end up with?
Historically the average annual dividend increase from AT&T is 2.5%. My model assumes that AT&T shares appreciate at the same 2.5% annual rate.
If you were to reinvest your AT&T dividends, you would stand to collect $11,326 in total aggregate dividend income over the next 30 years.
So that means you’d be collecting more than six times your original investment in dividends. And that’s before even factoring in any capital gains.
The power of dividend reinvestment can clearly be illustrated here. Assuming you didn’t reinvest your dividends, you would have only ended up with $4,230 in total dividend income. That’s a spread of over $7,000.
Jack Bogle, in a speech to FINRA in 2007, determined through exhaustive research that reinvested dividends account for about 95% of the total stock market’s return over the very long term. Ignore that at your own risk.
Six times BIGGER Dividends – with this one stock
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