Stock Analysis Pollie-Style!
In my half year review of 2017 (You can read it here – Letter to my readers – 2017: Half year review) I told you that I looked into way more companies, but didn’t post this on my website. So I imposed myself to publish more analysis Pollie-style.
Today is my third analysis for this new goal. For my analysis I use the famous CCC-list of David Fish and my Pollie-code.
Today I’ll take a look at one of the companies I already own. If I look at my Vrijheid Fonds, I see a couple of companies trading around of slightly below my own buying point. After this filter I looked at the diversification of my portfolio. And I say that the telecommunication sector is not heavily present in my Vrijheid Fonds (2.2%).
Therefore this analysis is on AT&T (T).
From google finance: AT&T Inc. is a holding company. The Company is a provider of communications and digital entertainment services in the United States and the world. The Company operates through four segments: Business Solutions, Entertainment Group, Consumer Mobility and International. The Company offers its services and products to consumers in the United States, Mexico and Latin America and to businesses and other providers of telecommunications services worldwide. It also owns and operates three regional TV sports networks, and retains non-controlling interests in another regional sports network and a network dedicated to game-related programming, as well as Internet interactive game playing. Its services and products include wireless communications, data/broadband and Internet services, digital video services, local and long-distance telephone services, telecommunications equipment, managed networking, and wholesale services. Its subsidiaries include AT&T Mobility and SKY Brasil Servicos Ltda.
Can I explain this to a 10-year old? What Does This Company Do?
This company allows you to make phone calls to your friends and family and provide a lot of television channels.
Dividend Aristocrat: T has raised its dividend for 33 consecutive years. It is therefore a Dividend Champions on the CCC-list from David Fish! (No. 82). They are a three star stock on Morningstar.com. That’s a Pass!
Dividend Yield > 2.5%: The dividend Yield of T is 5.3%. This is above the industry average of 3.6%, and slightly above its 5 years average (5.2%). The Yield is way above the requirements of the Pollie-Code, and therefore it is a Pass.
Dividend payout <70%: The dividend payout is roughly 92%. This is above the maximum ratio, and therefore a bit more risky. Therefore T failed for this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 2.1, 2.2, 2.2 and 3.7. With a 3-years average around 2.2% this looks very good! And it is above the requirements of the Pollie-code, so it is a pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. T has a current P/E ratio of 17.5. The industry average is 21.4. The P/E ratio is below the industry average. And below its 5-years average (27). The P/E-ratio is above the requirement of the Pollie-Code. So this is a Fail.
EPS > 0: The EPS is 2.13. Therefore T passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 10.6%. This is another Pass.
Market Cap. > 100M: No problem at this point. The market capitalization is more than $ 230.941 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 7.5. This is below the Pollie-Code requirements. This is due to the low DGR average. This is another Fail.
Stock price 52wk high-25%: The 52 week high and low are: 43.03 and 35.10. This means that T will be in my buying zone when the stock price is below 40.97 ((43.03-35.20)*0,75 + 35.10). At this moment T is trading for $38.21. Therefore it is a pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for T is 0.50.
Debt/Equity ratio: The Debt/Equity ratio of T is 1.06. This is a little bit high, but we all know that the telecommunication industry is very capital intensive. And to keep on top AT&T has to spend billions of dollars every year on maintenance, upgrades etc. The Debt/Equity ratio of AT&T is way lower than its nearest competitor, Verizon (VZ).
When I look at my analysis, AT&T passed 7 out of 10 metrics of the Pollie-code. I don’t mind a slightly higher P/E ratio than the requirements of my Pollie-Code, this because it is much lower than their historic en industry average P/E ratio. A fail at the chowder rule is understandable, because of their low DGR (which is normal in this industry). So both these points don’t worry me.
A concern for me is their high payout ratio. There is not much room for growth. If we look at what is to be expected, in my humble opinion AT&T is expected to benefit from its acquisition of Time Warner by improving the company’s cash flow and margin despite the added debt load.
This dividend aristocrat has been a widows and orphans cash cow for decades, and right at this very moment, an investor can receive a yield of nearly 5.50. This is what I like. A dividend aristocrat with a yield like this cannot be ignored!
All this information together I certainly will leave T on my watch list for my Vrijheid Fonds and probably will take action in the near future.
What are you – the readers, thoughts on AT&T? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
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