A poorly evaluated stock and a buying opportunity
I was out last month with the dreaded Covid. That’s all it’s meant to be and I feel blessed to always be on this side of the brilliant white light.
Before leaving by car to the crematorium, I came across an American stock which I could not believe was valued. I didn’t buy it because its valuation seemed so out of sync with the rest of the foamy stock valuations, I wanted to linger a bit before diving in. After all, the market is always supposed to be right, although thanks to the historical support of general liquidity, there is now a lot of leeway to make the “right” valuation. The US valuations didn’t hurt me and after sitting down on a few positions in these days of halcyon investing, it’s a bit rich to complain that the prices are too high. So seeing an example to the contrary was quite baffling, even for a wool-dyed contrarian.
Now back from the banks of the River Styx, I watched it again and still couldn’t believe it, so after a few more days I just had to buy – and I did.
The stock is AT&T
and what made me stand out was the dividend. It currently stands at 6.6%. When I was sucked into the Covid vortex, it was even more.
A dividend of 6.6%? A huge dividend in the United States of a household name? Surely a mistake.
I’m enjoying dividends right now because I’m tired of chasing capital gains that have fallen so drastically that I’m convinced that a risk-free approach makes sense. Anyone who has read my crypto posts before and during the rise and my bailout and bailout from the Covid crash and rebound will understand that 2020 has been a very good year, but as a long-time investor, thoughts quickly turn to reversals. of fortune when the profits of the bubble / boom invade the cash registers. Having almost “Urned” a near-permanent fortune reversal, I feel drawn to dividends because my old-fashioned way of thinking dividends often reflect safety.
Now, I still don’t understand how a TMT (Telecommunications, Media and Technology) can have such a modest rating. I know it sounds a bit dot.com, but a TMT with a little over 1 times the sales valuation just looks weird. If AT&T were just a phone company, that would be one thing, but 20% of its business is media.
As a result, AT&T is one of the ten largest companies in the United States, but is a minnow with a market cap of $ 225.76 billion, compared to trillion-dollar mammoths like Apple.
Here is the graph of this big late payment of dividends:
I like this kind of graphics. While many of these days are addicted to incredibly valuable stocks that climb year after year to ever higher altitudes, I like cheap and nothing gets cheaper than old-fashioned and beaten down.
I like to keep it simple in my graphics. Here is how I read it:
In the good old days of Benjamin Graham, the average value return on investment would be 30% and here we have just that advantage staring us in the face. Meanwhile, there is a 6% dividend to cut while you wait.
It all depends on the Federal Reserve. This is the only chart you need to know. I’ll be blunt, I’m impressed with this graph; although I’m sure it’s on purpose, it’s a beacon on the future of the market. The future is telegraphed as smooth and ascending.
So a huge, blue-chip, massive dividend paying company with a low valuation is not an opportunity that I can miss adding to my portfolio. If I catch a cold, I have had worse.
If this Fed magic ends, then “That’s everyone.” But that won’t happen any time soon, or perhaps within a significant timeframe.
Clem Chambers is the CEO of the private investors site ADVFN.com and author of 101 Ways to Pick Stock Market Winners and Cryptocurrency Trading: A Beginner’s Guide.
Chambers won the Journalist of the Year award in the Business Market Commentary category at the State Street UK Institutional Press Awards in 2018.