I was out last month with the dreaded Covid and it is everything its 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 US 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 frothy stock market valuations, I wanted to dwell of 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 maneuveur in making the ‘right’ valuation. US valuations have done me no harm at all and having sat of a few positions in these halcyon investing days, it’s a bit rich for whining that prices are to 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 (NYSE:T) and what made it stick out to me was the dividend. I currently stands at 6.6%. When I was sucked into the Covid vortex it was even more.
6.6% dividend?? A huge dividend in the US from a household name? Surely some mistake.
I’m liking dividends at he moment because I’m tired of chasing capital gain which 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 an 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 dividend as to my old school way of thinking, dividends often reflect safety.
Now I still can’t actually understand how a TMT 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. It AT@T was just a phone company that would be one things but 20% of its business is media.
Accordingly ATT is on of tge top 10 biggest corporations in the US but is a minnow with a market cap of in terms of the trillion dollar mammoths like Apple with its $2T valuation and Microsoft, Amazon and Google with the $1T+ market caps. Depending on what day it is AT@T cant even cling on to being in the Top 30. The top companies often have a 10x sales valuation not a 1.2 times like AT@T.
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 ol days of Benjamin Graham, the return on a value investment on an 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.
Its 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, it is while I’m sure its on purpose, 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.
It that Fed magic ends then “That’s All Folks.”
… but that isn’t going to happen anytime soon or perhaps in any meaningful timeframe.