AT&T Inc. (T) launched as an independent company 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 and Southwestern Bell. 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. If you had purchased $10,000 worth of AT&T shares on day one, your investment, not counting dividend payouts, would be worth $58,150 as of Oct. 2, 2020.

Key Takeaways

  • A $10,000 investment in AT&T stock at its IPO in 1984 would be worth $58,000 today.
  • The share price of AT&T has underperformed the S&P 500 since the early 2000s.
  • Its dividend yield, currently 7.2%, is a compensating factor.
  • If dividends were reinvested, that return for $10,000 invested in 1984 would be worth more than $300,000 today.

AT&T's History

AT&T was actually part of the first telephone company, Bell Telephone Co., founded by inventor 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 its monopoly control of the telephone industry, regulators moved to break up the company in 1983. The regional carriers broke off and became separate 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 U.S., AT&T began expanding its international footprint. The company also moved into the cable television market. Its U-Verse brand provides fiber-optic cable to households and businesses.

Moving Into TV

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 U.S. but also in Latin America, where DirecTV has a major presence.

Then, in 2018, AT&T acquired Time Warner Inc—the owner of Home Box Office (HBO), Turner, and various media properties. The $85 billion deal further expanded AT&T's presence in the pay-TV market.

The Math

If on July 19, 1984, you had spent $10,000 to purchase shares of AT&T you would have done relatively well up until the 2000s. The return of AT&T's stock performed relatively in-line with the S&P 500.

However, in the early 2000s, the S&P 500 began outperforming AT&T shares. Then, as the S&P 500 began to rebound after the financial crisis of 2008, AT&T shares underperformed. It has moved mostly sideways since.

On the bright side, AT&T pays a 7.2% dividend yield. Including dividend payments reinvested, AT&T has actually outperformed the S&P 500, with a $10,000 investment at its IPO returning $301,000 as of Oct. 2, 2020.

Future Expectations

AT&T appears to be in good financial shape, generating more than $25 billion in free cash flow over the last year. It has nearly $17 billion in cash.

However, revenue over the trailing 12 months (TTM) hit $175 billion as of Oct. 3, 2020. That's down 3% year-over-year. Its operating margin comes in at 13.8%, lagging that of top competitor Verizon's (VZ) at 20.2%.

AT&T does offer a hefty dividend yield. Its 7.2% dividend yield is well above Verizon's 4.2%. The company might not be a growth stock, but it generates steady cash flow from its mobile and entertainment businesses.