This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

AT&T: Dividends and Buybacks Work Just Fine

NEW YORK (F.A.S.T. Graphs) -- Recently I happened upon the article of a fellow TheStreet.com contributor detailing Blackrock (BLK) CEO Larry Fink's ideas of the current state of the stock market. Within this commentary it detailed how Fink believes that dividends and buybacks are the catalyst for the recent stock market rally, rather than increased profitability and a strong economy. In turn, it would seem that this could indicate a seemingly unsustainable path forward.

However, I would like to make two points on this notion. First, instead of looking at the "stock market" I like to think of it as a "market of stocks." It's paramount to remember that stocks represent ownership stakes in the underlying businesses, which are analogous to owning your hometown restaurant. It follows that what the market is doing and what any individual company is doing can vary greatly. So while Fink's statements might carry weight in the aggregate, they are not necessarily representative of every enterprise.

The second point is -- depending on the company -- I would contend that relying almost solely on dividend and buybacks could actually work out quite well for some investors. To this regard, I would like to use telecom powerhouse AT&T (T) as an example.

Based in Dallas, AT&T has nearly a quarter of a million employees who provide telecom service to virtually every country in the world. The AT&T name traces its roots all the way back to the beginning with Alexander Graham Bell and the invention of the telephone. However, the legacy company itself was forced to break up in 1984 through an agreement with the U.S. Department of Justice. From this arrangement, SBC Communications was formed along with a variety of smaller telephone companies. SBC began aggressively acquiring communication providers in the late 1990s, and in 2005 acquired AT&T Corp., shedding the SBC name in lieu of the iconic AT&T. This created the new AT&T and continues the storied history.

In viewing the past operating history of AT&T, it is prudent to view the company from the time of the SBC acquisition moving forward. Below I have included an Earnings and Price Correlated F.A.S.T. Graph for AT&T dating to 2006. Here we see that operating earnings (orange line) have been growing at just over 9% a year for the last eight years, while price has generally followed earnings. In addition, it's useful to recognize that the dividend (pink line) has been steadily increasing over this time period. Note that the payout ratio grew to over 100% recently due in large part to charges related to the failed T-Mobile acquisition.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,083.80 -2.83 -0.02%
S&P 500 1,987.98 +0.97 0.05%
NASDAQ 4,472.1080 -1.5890 -0.04%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs