AT&T stock has fallen -11% in 2020 yet it has outperformed the S&P 500 Index by 5%. Perhaps the largest driver for that could be the dividend yield.
As of the closing price on Friday March 13, 2020, the dividend yield for AT&T sits at 6.64%.
This leads us to do some comparative assessment of the AT&T dividend since 1984 until now. Not only will we look at the absolute yield but we will compare this to the risk-free guaranteed rate from the 10-year treasury.
If we go back to 1984, AT&T's dividend yield was 10% which appears to be astronomical. However, if we compare that yield against the 10-year T-bill, which was paying roughly 12.50%, the risk premium was only –2.50%.
Fast forward to the current environment where the coronavirus has driven equity prices down and bonds up. The dividend yield for AT&T is 6.64% and the 10-year T-bill closed the week below 1% for the first time ever.
This dramatic difference has created an opportunity for income investors with a positive risk premium of nearly 6%.
The relative dividend yield of AT&T since 1984 has been well documented. Investment Quality Trends (www.iqtrends.com) suggests that AT&T is undervalue when dividend yield reach 6%.
Our own calculation wasn’t far off at 6.30%. With the current yield at 6.60%, AT&T shouldn’t be ignore at this range.
