AT&T (T 1.02%) has a history dating back to the late 1800s. And over many periods of that long and storied history, it's been a fantastic stock to own.
However, over the last 10 years, AT&T stock has underperformed -- to say the least.
Let's dive in and see what's happened to this former stock market juggernaut.
Image source: Getty Images.
AT&T's big dividend might not be all it's cracked up to be
Let's start with the obvious: Many investors are attracted to AT&T because of its big dividend payouts. For example, the company currently pays $1.11 per share in regular annual dividends. The stock trades near $14 per share. If you divide the dividend payment by the share price, you get a dividend yield of about 7.7%.
That means owning AT&T shares will generate at least a 7.6% annual return on investment if two conditions hold:
1. AT&T maintains or raises its dividend payment.
2. AT&T shares maintain their existing price, or move higher.
Let's start with the first condition. AT&T has maintained its dividend remarkably well over the last decade. It's true that its dividend payment fell in 2022, but that was the result of a spin-off, rather than an outright reduction. Indeed, the company has maintained a 10-year dividend yield average of 7.5%, which is really impressive.
However, when you look at the second condition noted above, the problem with AT&T shares becomes evident. The stock has not maintained its price -- far from it. In point of fact, AT&T shares have lost almost 45% of their value over the last decade.
How has a $10,000 investment in AT&T performed over the last decade?
In short, the last decade has stunk for AT&T investors. Just compare a $10,000 investment in AT&T to an identical investment in the S&P 500:
T Total Return Level data by YCharts.
As you can see, the S&P 500 generated almost 12% annualized returns, while AT&T failed to hit 2%. And these are total returns, meaning they include AT&T's massive dividend payments. If you look only at price, AT&T's stock has sunk by more than 5% annually for the last decade.
Is AT&T a buy now?
One reason AT&T's stock price has languished is share dilution. In short, the number of outstanding AT&T shares has grown from 5.2 billion in 2015 to more than 7.1 billion today, rising 36% overall, or 3.2% on a compound annual basis. And as the number of shares increases, the value of each individual share decreases.
T Shares Outstanding data by YCharts.
Granted, AT&T has recently reversed the share dilution trend. Outstanding shares peaked at over 7.6 billion last year and have since been reduced by about 6%. Nevertheless, it could prove difficult for AT&T to maintain the momentum. The company has over $168 billion of debt and less than $10 billion in cash on its balance sheet, meaning the company will probably have to funnel free cash flow into debt service or debt repayment instead of share repurchases.
To sum up, AT&T remains a difficult stock to pin down. While its large dividend makes it appealing to value investors, its high debt load and history of share dilution make it a risky choice, even for those income-oriented investors who might be drawn to it.
