Shares in AT&T Inc. (T) slipped Monday after Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) disclosed that it sold out its entire stake in the telecommunications giant, but investors needn’t worry about AT&T stock.
Buffett was never a fan of T stock in the first place. Indeed, this was more of an accidental and incidental position for Berkshire Hathaway. BRK.B was a shareholder in DirectTV, but then T bought the satellite company in a cash-and-stock deal last year.
That’s how Berkshire Hathaway came to hold AT&T stock. It was also clear from the beginning that this stake wouldn’t last long. Indeed, Berkshire Hathaway has been selling its stake in T stock ever since it found itself holding it. Warren Buffett’s firm rid itself of nearly 13 million shares in the fourth quarter alone.
Happily, for investors in T stock, the market knows all this. Witness the price action in AT&T stock in early trading. At the 30-minute mark of trading, shares were essentially unchanged.
It’s safe to say that the investment thesis hasn’t changed on AT&T in light of this news. Not at all.
The telco may not be appropriate for BRK.B’s needs, but it remains a stalwart choice for long-term dividend hunters.
Price means everything to Warren Buffett, but that doesn’t mean T isn’t cheap enough for every investor. After all, the Oracle of Omaha has pretty strict valuation criteria based on a formulation of intrinsic value that only he knows.
AT&T Stock Still Looks Good
For the rest of us, the market is willing to pay a bit less than 13 times forward earnings for AT&T stock. With a long-term growth rate of not quite 9% a year, shares are by no means a screaming bargain, but neither are they particularly overpriced.
Besides, no one buys T for growth anyway. The appeal of this telecom is the generous dividend, which is routinely among the highest in the S&P 500 (AT&T always had the highest dividend yield in the Dow Jones Industrial Average when it was a member of the the blue-chip barometer).
At 4.91%, T’s dividend yield has actually become somewhat pedestrian by its own recent standards. Heck, the yield has almost never dipped below 5% over the last three years, according to data from YCharts.com.
As a dividend play, T is about as solid as they come.
It has been making uninterrupted payouts since 1984, earning it a place on InvestorPlace’s list of Dependable Dividend Stocks. It’s also a cash machine. And — importantly — it is a very good defensive stock. With a five-year beta of 0.31, T stock has been far less volatile than the S&P 500, according to S&P Capital IQ.
Don’t let the news that Warren Buffett spurned AT&T stock affect your equity income strategy here.
Nothing has changed with the telco, and you and Berkshire Hathaway have very different needs when it comes to deploying capital.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.