AT&T and 2-cents for Foolanthropy
Not sure this is worth 2-cents, but ...
In case you missed it, AT&T raised the dividend from .355 to .40 per share per quarter and announced a $400 million share buyback today. On a day that saw the S&P tank by 2.5%, T was up over a buck and a half or 4% to 39.46 a share. Even with the nice bump today, the stock is yielding over 4% at the new dividend rate.
T's trading at a forward PE at 12.5 vs. about 16 for the S&P 500. To match the S&P’s forward PE ratio, T would need to trade up to about $50 per share. I don't see any obvious reason why T should trade at a substantial discount to the market. Closing even half the gap would bring it to $45, a 12+% gain from today’s close.
I consider this a buy up to about $40 per share. The safe and relatively high dividend yield limits downside risk and there’s good potential for a 15% to 25% total return over the next 12 months.
Disclosure – I own shares of AT&T.