AT&T (NYSE:T) is currently yielding 6.7%. Dividend investors love AT&T stock and its juicy payout despite the fact it’s highly likely the telecom/media company will have to cut its dividend in the future to help pay down its massive debt.
Debt is a big reason that I’m not a fan of AT&T and probably never will be. Chasing yield is a mug’s game. It’s the total return that counts, not dividend yield.
And while the AT&T stock price is up approximately $2.77 a share, 51 cents of that return is due to its quarterly dividend.
By the end of the year, the dividend could account for almost 100% of its total return. For my money, I want the dividend to account for no more than 50% of a stock’s total return, preferably even lower around 25%.
Here are two stocks with a market cap higher than $2 billion trading within $2 of AT&T that will meet my criterion above and outperform AT&T stock on a total return basis over the next 1, 3, and 5-year periods.
Both of these stocks should put AT&T on the bench. Permanently.
Wolverine World Wide
Michigan-based Wolverine World Wide (NYSE:WWW) is probably best known for its Hush Puppies and Merrell brands. However, the footwear manufacturer has a total of 12 brands in its portfolio including Keds, Sperry, and Saucony.
Wolverine released its first-quarter results May 10 and investors didn’t like them sending its stock down by more than 5% on the news. With the losses after its Q1 2019 report, WWW stock is now down about 6.7% year to date. Its downward trend in 2019 ends three years of consecutive annual gains.
Like Warren Buffett, I believe that it’s good news when a stock is dropping in price because it allows you to buy while it’s on sale. Analysts see good things ahead for Wolverine.
“Despite back-end weighted guidance, we are confident Wolverine will achieve top- and bottom-line FY19 objectives,” wrote Susquehanna Financial Group analysts. “Headwinds faced in the first half should subside in the second half.”
Yielding 1.4%, capital appreciation is the key to shareholder happiness. Delivering an annualized total return of 13.2% over the past decade, I see WWW outperforming AT&T stock in the long run.
Park Hotels & Resorts
On May 6, in addition to releasing its Q1 2019 results, the company announced that it would buy Chesapeake Lodging Trust (NYSE:CHSP) for $2.7 billion. The strategic investment gives Park Hotels a total of 66 properties in 17 states and Washington D.C. and an enterprise value of $12.0 billion.
As a result of the purchase, the company’s revenue per available room (RevPAR) increases by 3.4% to $182. It also expands the number of hotel brands in the portfolio beyond Hilton, DoubleTree, and Waldorf Astoria, to include Marriott (NYSE:MAR), Hyatt (NYSE:H), and other third-party operators.
Since Park Hotels was spun-off from Hilton, it’s delivered a 46% total return to shareholders through the company’s merger announcement with Chesapeake.
I expect that its latest acquisition will provide significant shareholder returns in the years to come. Currently yielding 6.0%, I believe it’s a much better and safer dividend play than AT&T stock.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.