There are 3 companies that I have begun to accumulate that are, in my opinion, reasonably priced, and have ex-dividend dates approaching in early January.
AT&T (NYSE – Symbol T)
This is a company that is financially conservative, and fairly predictable in terms of revenue and earnings per share. It is well managed, and there are very few surprises that cause the stock to move precipitously in either direction.
Recently, there has been speculation about the effect on revenues and profits as a result of its main competitor in the wireless market, Verizon, when the exclusive arrangement with Apple expires, and Verizon begins selling the iPhone. Personally, I think the concerns are exaggerated, and any negative effect on the price per share will be due to emotions, and not facts.
AT&T recently announced that it was increasing its dividend, and buying back shares of its own stock. Both of these are indications of confidence by management of the future growth prospects for the company, and the sustainability of paying the dividend.
AT&T will pay a dividend of $.43 per share, which translates to an annual yield of about 5.9%.
I began to buy shares last week, and hold them at an average price of $29.24, which is slightly above where the stock closed on 12/23, at $29.20. I plan to add more shares this week, hopefully below $29.15.
Usually when a company goes ex-dividend, you can expect the share price to decline slightly. This is logical, since the value of the company is decreased as a result of the cash to be paid being reduced from its balance sheet. In the case of AT&T, I expect that the price may fall below $29.00 in the days following the ex-dividend date of January 6, but I expect it will recover shortly thereafter. Even if it doesn’t, AT&T fits in my criteria as a stock I would not mind holding as long as necessary until I can sell it at a profit. The dividend will be paid on 01/31/11.
Verizon (NYSE – Symbol VZ)
This, of course, is another telecommunications giant, and is very similar to AT&T in terms of having fiscally responsible management, despite the fact that part of its business is comprised of the former WorldCom organization. As you probably know, WorldCom perpetrated the largest fraud in the history of business in the US, and its leader, Bernie Ebbers, is in jail and will probably spend his remaining days there. Verizon acquired what was left of WorldCom, and integrated it into its own organization, which was primarily a combination of ”Baby Bell” companies that evolved following the breakup of AT&T in the early 1980’s. It is a company that is managed conservatively, and is also providing about a 5.6% annual yield. The stock has increased recently due, I think, to speculation about the company’s overall prospects and fueled by the notion of taking share from AT&T as a result of the potential sales of wireless services to existing and future owners of Apple’s iPhone.
I was fortunate enough to start to pick up shares on 12/20 when the stock was at $34.84. I plan to add more if it falls back anywhere under $35.00 over the next week or so.
Verizon goes ex-dividend on 01/06/11, at $0.4875 per share, payable on 01/31/11.
One final note: Since AT&T and Verizon compete vigorously, and each has its strengths and weaknesses, it is difficult to say which one will do better than the other in terms of shareholder value. My approach is to “buy them both”, and treat the overall investment as one when deciding to sell the shares. As long as I am profitable overall on the share price, and have successfully captured the dividend on both, I will be able to declare victory and move on to the next set of stocks that are approaching their ex-dividend dates.
Bristol Meyers Squibb (NYSE – Symbol BMY)
This pharmaceutical company is a slow growth, well managed organization that steadily churns out a very nice dividend each quarter. In my opinion, it is not growing fast enough to warrant making it as a long term hold in my retirement fund portfolio, but I am happy to buy it and sell it as long as it continues to trade in a narrow range. I’ve been successful in the past by watching it closely and buying on slight dips in per share price, such as when the overall market experiences a short term selloff. Then I wait for the ex-dividend date to pass, and sell the shares as soon as the share price recovers. Boring? Perhaps. . .but with a 5% annual yield, over 9 million shares traded daily, and over 70% of the stock owned by institutions, I can definitely live with boring.
The share price presently (12/23/10 close of $26.32) is actually slightly lower than where it was at this point just before the last quarterly dividend (9/23/10 close of $27.68), but above the lowest point between then and now (11/30/10 close of $25.24). The stock has a beta of 0.58, and since the quarterly sales and earnings are flat, I don’t expect much volatility over the next few weeks, barring any unforeseen news that could result in a short term move. I will start to purchase shares in my account if the stock falls below $26.25, and will buy more if it falls further. I’d love to own this going into the ex-dividend date of 01/05/11 at an average price of less than $26.15. Again, even if it doesn’t recover immediately, I have no problem holding this stock.
