In reviewing my stock portfolio today, I noticed that the current yield on AT&T (T, $28.77) stock is 5.98% and that there is good price support near the current share price, at around $28.00. I looked at the fundamentals and considered buying more shares. My next questions were, "How does AT&T's cash flow look? Can they continue to pay this dividend?"
I went online to Morgan Stanley Research and found this report, dated October 11, 2011: Telecom Services: Dividend Sustainability Analysis Shows Strong Support for Most Telcos.
I'm sorry I can't link to it, because it's private research for clients.
But I'll give you the gist of it. "We believe dividend sustainability remains healthy, despite secular pressures and concerns around the current macro environment. CenturyLink and the Canadian carriers look attractive, with American Tower worth watching."
The article analyzed telecom stocks from many points of view, including dividend growth, free cash flow, leverage, revenue growth, pension funding obligations, and more. As always, I then added in technical analysis, because no matter how attractive the stock might look from a fundamental viewpoint, a falling stock price is not going to gain me profit any time soon. I concentrated on the stocks which are in stable trading ranges or rising, because you know, time is money.
The telecom stocks which appear to have the best total return potential, i.e. dividend yield plus price appreciation based on both technicals and fundamentals are Verizon (VZ), AT&T (T) and CenturyLink (CTL). Many of the other telecoms I reviewed had attractive fundamentals, but collapsing share prices, such as Frontier Communications (FTR) and Telephone and Data Systems Inc. (TDS).
CenturyLink Inc. (CTL, $33.52, yield 8.65%) is rated by Morgan Stanley as having the "best risk-reward" of the stocks analyzed, "with the third highest dividend yield in the S&P 500." CenturyLink is projected to pay down $1.5 - $2.0 billion in debt by the end of fiscal 2012, and is therefore not currently increasing dividends nor repurchasing shares. The stock has been trading between $32 and $36 since early August.
AT&T (T, $28.77, yield 5.98%) -- Morgan Stanley says, "The balance sheet is strong, with the lowest leverage of the group at 1.4x in 2011E and 2013 debt maturities at 3.4% of market cap." The next dividend increase is projected for fourth quarter 2011, and the approved share repurchase plan is on hold during the AT&T/T-Mobile merger. The stock has been trading between about $27.50 and $29.50 since early August.
Verizon (VZ, $36.50, yield 5.48%) is showing stronger revenue growth than AT&T, but lower historic dividend growth. Its most recent dividend increase took place in September 2011. While the stock price briefly fell in early August with the market, it recovered quickly to its previous trading range in the mid-to-upper $30's.
Regarding credit ratings, Verizon and AT&T have virtually identical ratings from various credit agencies, while CenturyLink's ratings are decidedly lower, and not firmly in investment grade territory.
When choosing among big dividend stocks, I like to go with share price strength.
That's why I hear Verizon calling.
Crista Huff, goodfellowllc.com
|
Intraday |
1 Week |
1 Month |
3 Month |
1 Year |
| Volume | 11,135,380 |
| Open | 36.70 |
| Bid (Size) | 36.50 (100) |
| Ask (Size) | 36.58 (400) |
| Prev. Close | 36.90 |
| Today's Range | 36.46 - 36.80 |
| 52wk Range | 10.00 - 60.00 |
| Shares Outstanding | 2,830,580,870 |
Join the conversation as a VIP Member