November stock purchase #2 – Communications sector stocks

I’ve been quite preoccupied with work for the last couple of weeks so didn’t get chance to post my stock purchase last this week on ‘Sharebuilder Tuesday’, so I’m just giving a quick summary of the purchase along with an update on what’s been going on in my part of life.

Work

I was assigned a new role at work at the beginning of the month; it’s a high-profile project with a lot of upper management attention and it comes with a due-date of yesterday. So that’s been a major source of stress and excitement recently. I think most of my stress comes from the fear of the unknown – I’ve not had to work with the new teams before and this is in an area that I don’t usually work in. But now that I’ve met some of the people I’ll be working with and have a couple of presentations (which I hate) behind me, I’m getting more comfortable with it all and coming back out of my shell. This isn’t a promotion either – I’ve been given lines in my job description not dollars in my paycheck.

Stock Purchase – Communications Sector

The Veterans Day / Remembrance Day holiday last week affected the Sharebuilder deadline for setting automatic purchases. For once I managed to set the purchase ahead of time last week so that it went through this week. However I forgot to screenshot my portfolio at the time as I usually grab that to show which sector I’m buying. Last week the Communications sector was lowest weight and that’s what I added to. This follows on from a prior purchase last month.

Communications sector

The Communications sector consists of companies involved in communications industry, originally landline telephone, fiber optics and now wireless. Many of the telecommunications companies have essentially become Utilities because wireless connectivity is such a mainstay of everyday life here in the US now.

YTD Total Returns for the entire sector are 5.24% which is fifth lowest of all 11 stock sectors. Healthcare recently claimed the top position from Utilities with a 19% YTD return, but Communications gained a couple of positions by overtaking Energy and Basic Materials since last month.

My Communications sector dividend stocks

I currently have positions in T and VZ in the Communications sector.

AT&T

AT&T (T) is the third largest communications company in the world, below Verizon (2nd place) and China Mobile (1st place) with a market capitalization of $182B. It operates in three segments – Wireless, Wireline (landline and cable) and Other although the latter segment is only 1% of all revenue. It is additionally seeking growth through its Digital Life home automation service where it competes with Comcast among others, although the home automation industry is pretty fragmented due to lack of common standards.

T is a dividend Champion having increased its dividend for the last 30 years and it currently pays a dividend of $0.46 per share for a yield of 5.2%. It has been consistent in dividend increases; increasing them in January each year since 2004. Its current TTM payout ratio of 56.3% is similar to last year and 2010, although the ratio increased to 264% in 2011 reducing down to 141% in 2012 due to low earnings. The last 5 years’ annualized dividend growth from 2009 to 2014 is 2.3%.

Its P/E of 10.8 is below than the industry average of 16.1 and S&P 500 average of 18.6. With the exception of the low income 2011 and 2012, the P/E has been substantially below the S&P average so this year is no exception. T has low growth forecasts – its 5 year EPS growth estimate is 4.6%.

Verizon

Verizon (VZ) is the larger rival to A&T in what amounts to a duopoly in the US with a combined 70% market share of the wireless market. It has a $210B market capitalization. Similar to AT&T, it’s organized primarily into Wireless and Wireline segments.

VZ has been promoted this year to a Dividend Contender, having increased its dividend for the last 10 years. Its current dividend of $0.55 gives it a yield of 4.3%. It has been increasing dividends consistently in October since 2009 and annualized dividend growth over the last 5 years is 4.2%. Its TTM payout ratio is currently 46% and has been greater than 100% for four years from 2009 through 2012, reaching a high of over 600% in 2012.

VZ’s P/E of 11 is similar to AT&T’s P/E, being well below the industry average of 16.1 and the S&P’s 18.6. For the most part over the last ten years, the P/E has been higher than the S&P average, but starting last year its P/E has been quite a bit lower than the S&P and that trend is continuing this year. Projected EPS growth over the next 5 years is 7%, up 0.5% from last month.

What I bought

So I ended up buying $275 in VZ last week. I first purchased VZ last month and this purchase increases the total number of VZ shares to 11. Both VZ and T are fairly stable companies who aren’t going anywhere and it’s expensive to build out the infrastructure that they both have. They both pay good dividends – T has a higher yield but VZ has higher growth forecasts at present.

I also spent the princely sum of $25 to buy more T. I was playing with the idea of a fixed $25 per month into 4 core companies on a fire-and-forget approach, but I’ve since nixed that idea after starting it…T would have been one of those 4 companies. I have some free trades from a grand-fathered Sharebuilder plan so I can get away with small purchases like that.

 

Quote of the day

The secret of getting ahead is getting started.

0 thoughts on “November stock purchase #2 – Communications sector stocks”

    1. Hi R2R,

      Yep my thoughts exactly! The telecoms sector in the US is fairly thin when it comes to dividend champions with <2% dividend yield but I think both these companies are good long term holds.

      Best wishes,
      -DL

  1. Hi Dividend Life,

    The only 2 telecom stocks that I see worth purchasing are Rogers Communication Inc. and Bell Canada Enterprises.

    Rogers has expanded into the sport industry, have stadiums and is a leading telecom company in Canada. BCE has also made contracts into the news industry. I see great potential in both companies.

    Also, it is nice to see someone in a similar net worth position as me. I will keep track of your progress!

    1. Hi Jeff,

      I must admit my screener is limited to US stocks so thank you for mentioning two other good companies. I know very little about either company but I think long term the need for internet and data communications will only increase – if not in subscriber count then in the amount of data – and it’s a very capital intensive market to enter so there’s lots of things to like about established companies in the sector. Although as a wannabe cord-cutter I regularly check on when it’s worth cutting my cable TV subscription but I haven’t reached that point yet.

      Roadmap2Retire recently wrote about Rogers and it’s worth a read if you haven’t come across his article already.

      I’m looking forward to reading about your continued success on your 7 year plan!

      Best wishes,
      -DL

    1. Hi DFG,

      Thanks, I hope so!

      I definitely agree with you about Time – it’s not only money, it’s the most valuable currency there is because it’s irreplaceable.

      Best wishes,
      -DL

  2. DivLife,

    I like your constant contributions with no slowing down from you. The quote on the page was the trick to getting ahead is getting started – you are crushing that fact and are making moves – congrats on the telecom purchases and keep the cash flowing to different assets that produce income for you!

    -Happy Thanksgiving-

    -Lanny

    1. Hi Lanny,

      Thanks for your support and holiday wishes! My November was a great month all in all and I’m writing up the summary now. I hope you had an awesome month too!

      Best wishes and keep the diplomacy going!
      -DL

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