My Stock Portfolio: AT&T

I've said before that I firmly believe that the best investment strategy for most people, me included, is to invest in a diversified portfolio of index mutual funds.  You should pick an asset allocation ratio (what percent of your money is in stocks vs bonds, and foreign vs domestic) set it, and generally leave it alone.  Invest regularly and do not try to time the market.  If you do this I can almost guarantee you:

• You are not going to double your money in a year or two
• You are not going to lose money, in the long run
• You will have up years and down years, but if you don't sell during the down years, you will eventually recover (and then some)
• 
  

That being said, I personally find the stock market to be fascinating and I like playing around with it.  We allocate a very small percent of our assets to purchasing individual stocks using low-fee or no-fee brokers.  Robinhood allows you to purchase individual shares of most companies in realtime for no commissions.  Robinhood also allows you to set stop loss, limit buys and limit sell orders.  If you use my Robinhood link, you will get one free share of stock, and so will I.  What have you got to lose?

This article will begin a periodic series on the individual stocks in which I have invested.  These articles are not a recommendation that you purchase the stock, but rather an indication of why I purchased it, how it has performed, and what I plan to do with it.  

Name of Company and Description of Business

According to AT&T's website 

At AT&T, we’re bringing it all together. We deliver advanced mobile services, next-generation TV, high-speed internet and smart solutions for people and businesses. That’s why we’re investing to be a global leader in the Technology, Media and Telecommunications industry.

In the United States, we offer TV and wireless nationwide, plus a large high-speed internet footprint. We offer a wide choice of internet speeds to meet customers’ needs. With our 100% fiber network, customers in 67 markets can download a 90-minute HD movie in less than 36 seconds, a 30-minute TV episode in 3 seconds and 25 songs in 1 second¹. We plan to expand these speeds to at least 75 metros in total. We also offer pay TV in 11 Latin American countries.

We offer solutions that help businesses in every industry serve their customers better. We deliver advanced services to millions of businesses on 6 continents. That includes nearly all of the Fortune 1000 as well as neighborhood businesses across the United States.

Our high-speed mobile internet network covers more than 400 million people and businesses across the U.S. and Mexico. We also wirelessly connect cars, machines, shipping containers and more. It's all part of our leadership in what’s called the Internet of Things.

Speaking historically, AT&T is "the phone company" that got its start when Alexander Graham Bell invented the telephone.  It has gone through several rounds of break-ups and consolidations but today offers a variety of telecommunications products.

Date Purchased

I purchased two shares on November 21, 2016.

Purchase Price

My purchase price was $37.67.

Current Price

The current price, as of 12:49 CST, on 1/29/18 is $37.49.

Stop-Loss Price

I do not have a stop-loss set for this stock.  I don't think AT&T is going anywhere so I'm not afraid of losing a lot of money on this.  While the price may go up and down, the business itself is profitable and it is paying a good dividend.

Dividends Received

I received $.49 per share on May 1, August 1, November 1 and will receive a $0.50 dividend on February 1.

Gain or Loss Since Purchase:

My dividends plus the current cost of the stock total $38.47; I purchased the share for $37.67, giving me a current gain of $0.80 or 2.1%  over 14 months. By comparison, the S&P has risen about 35% since then.

What Others Think

Dividend Value Builder:  "T is a great addition to any large diversified portfolio. However, it should be viewed differently than in the past. I’m afraid the long term risk of a dividend cut is higher than most investors perceive."

The Money Madam at Seeking Alpha:  "AT&T is a good pick for 2018"

Stone Fox Capital at Seeking Alpha:  " Ultimately, the highly competitive domestic wireless market and cable television markets limit any material upside for the stock. Investors in AT&T will get to enjoy the large 5% dividend yield, but not much else."

Discount Fountain at Seeking Alpha:  "[M] view is that AT&T will continue to be a strong long-term investment going forward. The stock pays a very attractive yield, its core business remains strong, and the implications surrounding the ongoing Time Warner deal appear to be causing irrational avoidance of this stock, leading to quite a good buying opportunity."

Brian Bollinger (10/26/16): "However, my preference is to watch major transformations from the sideline for a while. AT&T has a lot of new businesses to digest and optimize between DirecTV and Time Warner. The media industry could certainly evolve the way AT&T is expecting (and in part trying to force with its deals), but there are plenty of other risks involved as well. Certainly no one can forget AOL’s disastrous merger with Time Warner.

For now, I prefer to stick with other high dividend stocks in our Conservative Retirees dividend stock portfolio. "

Jason Feiber (11/12/17):  "AT&T Inc. (T) is a high-quality business with a tremendous record for paying shareholders a huge and growing dividend. Their ability to continue doing that could very well improve moving forward, yet the stock’s recent price action apparently discounts much of this. But short-term volatility is often a long-term opportunity, and this stock has the potential for 14% upside on top of a market-crushing yield of almost 6%. If you like your dividends big, and you want them to get bigger every year, this dividend growth stock should be on your radar."

Why Did I Purchase?

I purchased AT&T stock because I was looking for a company that paid good dividends and that would be around for the long haul.

What Are My Plans?

I plan to maintain my position into the indefinite future, though if the price drops below $37.00 in the next few months, I may buy another share.

Additional Comments:

A couple of days after I wrote most of this article, AT&T released their fourth quarter earnings per share.  While the expected earnings per share were $0.65 per share, the actual earnings per share were $0.78, and as a result, share price rose $1.19 in after hours trading.  

Should I Buy Dividend Stocks or Growth Stocks?

You don't have to read investing blogs very long before coming across the idea of investing in dividend growth stocks--stocks that pay a yearly dividend and which have historically increased that dividend on a regular basis.

Those who champion dividend growth investing liken it to planting a money tree--once you have planted it (purchased the stocks), the fruit is there for the picking (dividends are paid regularly) and increases as time goes on.  The stock that pays you a $3.00 dividend this year may pay you $3.10 next year (or it may pay less if business is not good).

Last week I read an blog post (and I wish I had bookmarked it) in which the author eschewed dividend growth investing, stating that generally when dividends were declared, the value of the shares dropped the same amount, giving you a zero-sum game, except that you had to pay taxes on the dividends.  Something about that statement didn't sound right to me, so I did some math.

Disclaimer:  The last time I took a standardized test, my verbal skills were in the 99th percentile, and my math skills, dead average.  Make of it what you will.  

Trying to figure out what WILL happen in the stock market is, at best, an educated guess and it isn't very useful for comparison purposes.

The shares of a particular company pay increase or decrease in price due to factors unique to that company.  In other words, if a company has a great new invention that "everyone" wants to buy, investors may bid up the price of the stock in that company.  In the same way, if something happens so that the company's future prospects look bad, investors may seek to sell off the stock and the and the price per share will drop,

On the other hand, sometimes the price of stocks will change, sometimes substantially, not because of anything good or bad that happened to the company but because the market as a whole has moved and they get caught up in it.

In other words, while the price of a company's stock is, to some extent, a reflection of the current and expected profits of the company, there are times that prices of shares of stock in a particular company may drop for reasons that have little to nothing to do with the company.

Dividends, on the other hand, are a reflection of earnings.  If a company isn't making a profit, the only way it can pay a dividend is to use savings, and no company can do that long-term.

So, back to the question, is it better to own stock in a company that pays a dividend, or a company that does not, assuming the same rate of growth?

I did the following math:

Since I know the average stock market return over the long haul is about 7%, I used random.org to randomize numbers between -10 and 20 to come up with a string of numbers that my eyeball estimate told me averaged close to that.  Actually I ended up with numbers that average a little over 5% and decided to stick with them.

I used those numbers as the percent increase in the stock price in a given year.  I started with 500 shares of stock that cost $100 each.  Each year I assumed the growth rate was my random number and figured out how much I would have at the end of the year.  Here is the chart I got:

Year	Return	no of shares	open price/share	end price per share	total value end
1	-0.02	500	100	98	49000
2	0.13	490	98	110.74	55370
3	0.01	565	110.74	111.8474	55923.7
4	0.16	505	111.8474	129.74	64870
5	0.08	579.9866604	129.74	140.1192	70059.6
6	-0.09	540	140.1192	127.508	63754.24
7	0.05	455.0000285	127.508	133.883	66941.7
8	0.11	525	133.883	148.61	74305.06

I never took any money out of this account and at the end of eight years I had $74,305.06.  But what if this had been a dividend paying stock?  Would it make any difference?  My guess before I did the math, was that it wouldn't make a diffence in the accumulation  phase.  I was almost right.

I used the same return rates on the second chart.  The difference is that I assumed that this stock paid a $3,00 per share dividend on the last day of the year, and that the stock then fell in price by 3.00. In other words, if the stock sold for $98 on the last day of the year, I opened it the next year at $95 rather than $98.  However, I used that $3.00 per share to buy more stock at that opening price.  At the end of the year, I computed the value by multiplying the number of shares from the beginning of the year by the post-dividend price, and then adding the dividends paid.  

Year	Return	# of shares	open price/share	pre-dividend close	$3 dividend	post div close	total end value
1	-0.02	500	100	98	1500	95	49000
2	0.13	515.7894737	95	107.35	1547.368421	104.35	55370
3	0.01	530.6181121	104.35	105.3935	1591.854336	102.3935	55923.7
4	0.16	546.1645515	102.3935	118.77646	1638.493654	115.77646	64871.492
5	0.08	560.3167691	115.77646	125.0385768	1680.950307	122.0385768	70061.21136
6	-0.09	574.0906949	122.0385768	111.0551049	1722.272085	108.0551049	63755.70234
7	0.05	590.0295262	108.0551049	113.4578601	1770.088579	110.4578601	66943.48745
8	0.11	606.0545386	110.4578601	122.6082247	1818.163616	119.6082247	74307.27107

What About During Withdrawals?

I redid the first chart, only this time, after computing the value on the last day of the year, I withdrew $5,000, which reduced the number of shares with which I started the next year.  Here are my results:

Year	Return	no of shares	open price/share	end price per share	pre-withdrawal value	post withdrawal value
1	-0.02	500	100	98	49000	44000
2	0.13	448.9795918	98	110.74	49720	44720
3	0.01	403.8287882	110.74	111.8474	45167.2	40167.2
4	0.16	359.1250221	111.8474	129.742984	46593.952	41593.952
5	0.08	320.5872928	129.742984	140.1224227	44921.46816	39921.46816
6	-0.09	284.9042101	140.1224227	127.5114047	36328.53603	31328.53603
7	0.05	245.6920313	127.5114047	133.8869749	32894.96283	27894.96283
8	0.11	208.3470991	133.8869749	148.6145421	30963.40874	25963.40874

I then re-did the chart, assuming that after the dividend had been paid, I used it as part of the $5,000 I withdrew.  I thought the dividend payer would come out ahead.

Year	Return	# of Shares	Price per share	pre-dividend close	$3 dividend	post div close	pre-withdrawal	post withdrawal
1	-0.02	500	100	98	1500	95	47500	44,000
2	0.13	463.1578947	95	107.35	1389.473684	104.35	48330.52632	44,720
3	0.01	428.5577384	104.35	105.3935	1285.673215	102.3935	43881.52678	40,167
4	0.16	392.2827133	102.3935	118.77646	1176.84814	115.77646	45417.10386	41,594
5	0.08	359.2608722	115.77646	125.0385768	1077.782617	122.0385768	43843.68554	39,921
6	-0.09	327.1217119	122.0385768	111.0551049	981.3651357	108.0551049	35347.17089	31,329
7	0.05	289.9311056	108.0551049	113.4578601	869.7933168	110.4578601	32025.16951	27,895
8	0.11	252.53941	110.4578601	122.6082247	757.61823	119.6082247	30205.79051	25,963

Well, you can tell I write these posts on the fly because obviously, there is no difference (or at least no significant difference) between getting dividends and having the price of the stock increase, whether you are trying to accumulate more stock or whether you are trying to generate cash to spend.

That conclusion, of course, assumes that there is no difference in the stocks, which is something that rarely happens.  In general, companies that are profitable and growing at a slow but steady pace, if at all, pay dividends.  Companies that are re-investing everything they have into growing the companies do not pay dividends, but hopefully the price of the stock will increase in the long run.  Of course if they overbuild, then the stock can crash for that reason.

Are you a dividend investor?  If so, has my little exercise made you reconsider your stance?  Why or why not?

Stock of the Month: Hanesbrands, Inc.

This is the first of hopefully many monthly posts about the stock I chose to buy that month.  I want to make it clear from the onset that I am not a professional investment advisor, that what is right for me may not be right for you and that this account, for me, is in between an investment and a toy.

I firmly believe that for most people the best long-term way to invest is in a diversified portfolio of low cost index mutual funds or ETFs.  That is where the majority of my investment money goes. 

However, being a bit of an investment nerd, I want to try to beat the system and pick my own stocks. This portfolio is a very small portion of my investable assets.  To put it another way, instead of buying shoes I don't need, I'm buying stocks I don't need; if they all tank tomorrow, life will go on as before.

What Stock Did  I Buy This Month?

This month I bought two shares of Hanesbrands, Inc.

What Does Hanesbrands, Inc. Do?

Haneswear, Inc. makes underwear and active wear. Their brands include Hanes, Bali, Playtex, Champion and L'Eggs.  

Why Did I Pick Hanesbrands, Inc.?

This month I decided to start my search for a stock at Morningstar.  My library subscribes to the full version of Morningstar and I can access it from my home computer.  I searched for five star stocks and then reviewed the list for companies with which I was familiar.  There were two:  Bed Bath and Beyond and Hanesbrands.  My Loyal3 portfolio already has Target and Kohls so I didn't want another retailer.  I decided to investigate Hanesbands further.

I then checked A Frugal Family's Journey's list of stock analysis post  in 2016 to see if anyone had written about Hanesbrands recently, and I found that Dividend Diatribes had and that JT was at least interested in the stock.  

I went back to Morningstar and read their analyst report written in October, 2016 which valued the stock at $39.00.  Since I bought at $21.93, Morningstar believes I got a bargain.  Gurufocus  has a calculator which only gave a value of $17.63 but I didn't find that until after I bought the stock. Zachary Sturdy wrote about Hanesbrands for Seeking Alpha and he valued it at $28.49 per share.

I decided that when I thought underwear, I thought Hanes and I'm sure a lot of other people do too.  At the price I paid, if dividends do not go up this year, I'll earn 2% .  The expectation is that Hanesbrands will raise the dividend.

Where Did I Get the Money?

The money I invested in the Hanesbrand, Inc. stock is money paid as dividends in my Motif portfolio.  

From Whom Did I Buy the Stock?

I purchased my Hanesbrand stock via Robinhood.  I paid no commission and will pay no commission when I sell.  

Did you buy any stock this month?
*Part of Financially Savvy Saturdays on brokeGIRLrich, and Racing Towards Retirement*

The Great American Dividend Machine: Book Review

The Great American Dividend Machine: How an Outsider Became the Undisputed Champ of Wall Street

About the Book:

Bill Spetrino was just an ordinary accountant more than 20 years ago when he discovered the best investment secret ever.

Bill calls his secret “the dividend machine” -- and he has been sharing his secrets with hundreds of thousands of investors who have subscribed to his popular Dividend Machine newsletter, rated by Hulbert Digest as the #1 low risk investment letter.

But many readers asked Bill to write a book about his secret and how ordinary investors can become millionaires just like him.

Bill did just that.

Now his new The Great American Dividend Machine reveals his own story, and how he went from becoming a middle-class accountant to having a net worth exceeding more than $5 million!

Traders who jump from stock to stock in the hunt for a major Wall Street score often lose money or, at best, break even.

That's not an acceptable fate for the retirement nest egg or for Bill.

Instead, true investors trust Bill Spetrino's proven advice: "Keep investments boring and the rest of life fun and exciting."

By valuing safety and income above all else, Spetrino guides the reader through the process of unearthing true bargains in the marketplace.

Adhering to the author's model, The Great American Dividend Machine portfolio is composed of stocks that he picks using his unique system.

The companies that pass Spetrino's rigorous, multi-step vetting process must have a number of key characteristics, such as:

Resonant brand names

Strong, competitive advantages in their industries

Pristine balance sheets

Capital to help survive and thrive in difficult markets

Bill believes anyone can become a millionaire by ignoring the Wall Street pros and using his time-tested strategies.

My Comments:

If you have spent any amount of time surfing investing blogs, you've come across the idea of dividend stock investing--assembling a portfolio of stocks based largely on the dividend paid by the company.  This book is largely an advertisement for that style of investing in general and Bill Spetrino's newsletter in particular.  It reminds me of those "paid programming" shows on TV where someone tells you some basic concepts and then shows you how buying their product makes everything easier.   Yes, you could make the dessert without the $29.95 tool they are selling but it wouldn't be as easy or quite the same.  

The book is written in the first person--Bill is talking directly to readers, telling them about his history as an entrepreneur and how he learned to predict the future (bet at the racetrack or casino) by looking at the numbers and getting information other people didn't have.  The goal is obviously to get you to trust him as a person who knows what he is doing with your money.  While he gives some basic financial advice that can be found on just about any financial planning blog (spend less than you make, keep an emergency fund, the power of compounding...) mostly he talks about how good he is at recognizing stocks that will do well.  Obviously, it is his goal to buy low, when the "market" doesn't realize what a good deal a particular stock is, and to hold that stock until something makes him think that the company is no longer doing well.

If you are buying this book  with the idea of learning how to pick good dividend-paying stocks, save your money.  This book contstantly states why Spetrino prefers stocks that pay dividends to those which don't, and talks about buying the stocks at the best price, however, rather than teach readers how to pick winning stocks, Spetrino uses this book to sell his newsletter--which costs almost $100 per year.  Given that even in the Kindle version, this book is not cheap, I think most readers will be disappointed.  

I'd like to thank the publisher for making a complimentary review copy availabe via NetGalley. Grade:  C.  

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