AT&T Inc. (NYSE: T) started in 1983 when U.S. regulators forced the breakup of the Bell System monopoly. The company spun most of its subsidiaries off into regional carriers, such as South Central Bell, Southwestern Bell and so forth. AT&T's core business became long-distance service, with Sprint and MCI as its main competitors. The company had its initial public offering (IPO) on July 19, 1984. The share price was $1.25. If you had purchased 100 AT&T shares for $125 on day one, your investment, not counting dividend payouts, would be worth $45,240 as of January 2018.
AT&T's Long History
AT&T was actually part of the first telephone company, Bell Telephone Company, founded by Alexander Graham Bell in 1885. Over the next century, the company established a network of regional phone carriers, called the Bells, which dominated the telephone industry in America. The parent company, AT&T, was known as Ma Bell.
Citing a monopoly, regulators moved to break up the company in 1983, leading to the regional carriers breaking off and becoming their own companies. The parent company retained a nationwide focus, with its core business being long-distance service.
Expansions and Acquisitions
As demand for long-distance service and landline telephone communication, in general, waned in the United States, AT&T began expanding its international footprint. The company also forayed into the cable television market; its U-Verse brand provides fiber-optic cable to a limited but growing number of households and businesses in the United States.
In late 2014, the Federal Communications Commission (FCC) approved a deal for AT&T to purchase satellite TV provider DirecTV. The DirecTV deal expanded not only the company's TV service footprint in the United States but also in Latin America, where DirecTV has 18 million subscribers.
If on July 19, 1984, you had spent $125 to purchase 100 shares of AT&T stock at $1.25 each, you would own 1,200 shares at a value of $37.70 per share. Hence, your investment would be worth $45,240. The twelvefold increase in shares is due to three stock splits over the past 30 years: a 3-for-1 split in 1987, a 2-for-1 split in 1993 and another 2-for-1 split in 1998.
Moreover, these numbers do not take into account the company's yearly dividend, which you could have reinvested in more AT&T stock or taken in cash and invested elsewhere. AT&T has steadily increased its dividend yield over the past three decades; as of late-January 2018, it stands at 5.3%.
Therefore, in addition to any capital gains this year from share price appreciation, you would receive a dividend payout of approximately $6,360. You could have this money automatically reinvested in more AT&T stock; at current prices, it would purchase approximately 69 shares. Or, you could take it in cash to invest elsewhere or spend it if you prefer. Had you reinvested your dividend every year, your current share ownership would be far in excess of 1,200 shares.
Analyzing AT&T's most recent financial statements reveals the company is in good financial shape. Revenue is down by over 2% from the previous 12 months. Operating margin is 13%, while operational cash flow is in excess of $39 billion. The company's debt picture leaves a little to be desired, with a debt-to-equity (D/E) ratio of 106% and a current ratio of 0.73. Conservative investors like to see the D/E ratio below 100% and the current ratio above 1.
Moreover, AT&T has not had a stock split since 1998 and could be due for one. To attract new investors, companies sometimes split their stock when the share price gets high. Current shareholders benefit because their share count multiplies. An investor with 100 shares would have 200 shares after a 2-for-1 split. Since the share price reduces by half in a 2-for-1 split, shareholders do not benefit from a stock split in the short term. Over the long term, however, stocks usually regain their original value after a split. When this happens, the total value of shares is double what it was before the split.