Y’all may hate me for saying this, but AT&T Inc. (NYSE:T) is a boring company. Sure, every now and then, events spice things up. Recently, AT&T and Verizon Communications Inc. (NYSE:VZ) have been eating crow over their attacks against T-Mobile US Inc (NASDAQ:TMUS). VZ has received the brunt of T-Mobile’s counterpunches, but its CEO, John Legere, is no stranger to controversy. That’s likely to put T stock on the cover of a gossip magazine as it is on The Wall Street Journal.
But for the most part, AT&T is a big hulking mass of old money. The drama surrounding VZ is entertaining to watch, and near-unanimous support by Time Warner Inc (NYSE:TWX) shareholders of a proposed TWX-T merger is newsworthy.
Then again, it’s sort of expected. Wake me up when the Department of Justice approves the deal.
On the flip side, T stock has proved it has still got some moves. Last year, T shares returned 30%. Compare that to the vaunted “FANG” stocks.
On average, Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) combined for a little less than 12% in 2016. At the top of the FANG spectrum was AMZN, which turned in a performance just shy of 18%.
So there you have it — AT&T stock took down almighty Amazon.
Of course, I’m being a bit facetious. If the market gods gave investors a freebie, I’d be shocked if anyone would choose AT&T stock. The reason is obvious. Every dog has its day, and 2016 just happened to be one of the good years for T stock. Back to planet Earth, in the three years between 2013 and the end of 2015, the company only managed a pedestrian 4.8% average.
The Math Looks Good for T stock
Depending on your investment strategy, though, pedestrian just might do the trick. Here’s a good test to see if AT&T stock is right for you. If you’re still trying to figure out why your VCR flashes “12:00” all the time, congratulations! Mr. T is your right-hand man.
I’m just half-joking here. InvestorPlace Contributor Lawrence Meyers rightfully declared that AT&T stock is a dividend behemoth. Indeed, he has no reservations, writing, “for this investor, buying AT&T stock is really just to get the 4.76% dividend.” I appreciate Meyers’ candor because it’s funny, and more importantly, he’s spot on.
Just look at your cards. AT&T stock in its present form began trading towards the tail end of 1983. Lifetime, T stock is averaging returns of 12.7% — probably not what you were expecting. However, much of that growth occurred in its initial phase. Up to 1999, AT&T turned in 20.5%. From 2000 to the end of 2016, it’s a much more humble 4.8%.
Now what do I always tell people? Crunch the numbers!
I have probably driven my editorial team crazy by now, but in this case, the math really does sell itself. Between T stock’s return average of this century and the dividend yield, there’s less than a 1% differential. Year in and year out, investors can expect a steady climb, with the occasional pop. At the same time, you get a stream of generous passive income.
In retail, we’d call this a “two-fer.” On Wall Street, it’s just a really smart deal.
Don’t Over-complicate AT&T stock
There are other things about AT&T stock to point out as well. Fundamentally, the company is doing the things it needs to do just right. Last month, the company released its earnings results for the fourth quarter. Although the top-line fell a bit below expectations, T stock’s earnings-per-share of 66 cents met consensus. It also represented 5% growth year-over-year.
As Meyers further notes, “the real thing to keep an eye on is both operating and free cash flow, since that’s where the dividend payments come from. Both of these numbers were excellent.” From that perspective, those that are buying T for the dividends can sleep easy on their decision.
InvestorPlace Feature Writer James Brumley forwarded an analysis of “Project AirGig.” This revolutionary technology would deliver high-speed internet services through utility lines. Although it’s a little far out into the future for current T stock buyers to benefit, the potential is huge. This may be a win-win for AT&T and utility companies. Also, it would solidify the former’s dominance even further.
But at the end of the day, I’m going with the age-old adage, “keep it simple, stupid!” With AT&T stock essentially delivering the same yields as its capital returns, I don’t really see the downside. This is true so long as you appreciate T stock for what it is — a no non-sense investment. Keep the expectations in check, and you’ll be happy as a clam.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
