I was out last month with the dreaded Covid. It is everything it’s cracked up to be and I feel blessed to be still on this side of the bright white light.
Before I went for a drive towards the crematorium I bumped into a U.S. stock I couldn’t believe the valuation of. I didn’t buy it because its valuation seemed so out of whack with the rest of the frothy stock market valuations, I wanted to dwell on it a bit before diving in. After all, the market is always meant to be right, although with the historic support of general liquidity there is now plenty of room for maneuver in making the ‘right’ valuation. U.S. valuations have done me no harm at all and having sat on a few positions in these halcyon investing days, it’s a bit rich to be whining that prices are too high. So to see an instance of the opposite was quite disconcerting even for a dyed-in the wool contrarian.
Back now from the banks of the river Styx I took a look at it again and I still couldn’t believe it, so after a few more days I just had to buy – and I have.
The stock is AT&T
A 6.6% dividend? A huge dividend in the U.S. from a household name? Surely some mistake.
I’m liking dividends at the moment because I’m tired of chasing capital gains that have fallen so copiously I feel sure that a risk off approach is a sensible pivot. Anyone who has read my crypto posts before and during the rise and my bail-out and bail-in of the Covid crash and bounce will understand 2020 was a very good year, but as a long in the tooth investor, thoughts turn quickly to reversals of fortune when boom/bubble profits swamp the coffers. Having nearly “Urned” a near permanent reversal of fortune, I feel attracted to dividends because to my old school way of thinking, dividends often reflect safety.
Now I still can’t actually understand how a TMT (telecommunications, media and technology) can have such a lowly valuation. I know that sounds a bit dot.com, but a TMT with just over a 1 times sales valuation just seems weird. If AT&T was just a phone company that would be one thing, but 20% of its business is media.
Accordingly, AT&T is one of the top ten biggest corporations in the U.S. but is a minnow with a market cap of $225.76 billion, compared to the trillion-dollar mammoths like Apple
So here is the chart of this fat dividend-paying laggard:
I like these sorts of charts. While many these days are hooked on incredibly valued shares that just grind on up year after year to ever higher altitudes, I like cheap and nothing gets cheaper than unfashionable and beaten down.
I like to keep things simple in my charting. This is how I read it:
Back in the good old days of Benjamin Graham, the return on a value investment on average would be 30% and here we have just that upside staring us in the face. Meanwhile there is a 6% dividend to clip while you wait.
It’s all down to the Federal Reserve though. This is the only chart you need to know. I’ll be frank, I’m in awe of this chart; while I’m sure it’s on purpose, it is a guiding beacon on the market’s future. The future is telegraphed as smooth and upward.
So a huge blue chip company paying a massive dividend with a low valuation is not an opportunity I can miss adding to my portfolio. If I catch a cold, I’ve had worse.
If that Fed magic ends then “That’s All Folks.” But that isn’t going to happen anytime soon or perhaps in any meaningful timeframe.
Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.
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