AT&T Inc. (T) got its start 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 $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.
- Buying $10,000 worth of AT&T on at its IPO in 1984 would be worth $58,000 today.
- The share price of AT&T has grossly underperformed the S&P 500 since its IPO, due in large part to its underperformance over the last decade.
- However, including dividends, where AT&T currently offers a 7.2% dividend yield, the return of $10,000 invested at its IPO would be worth over $300,000.
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 U.S., 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 households and businesses.
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 large 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.
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, the returns of the two started to diverge in the early 2000s, with the S&P 500 outperforming AT&T shares. Then, as the S&P 500 started to rebound after the financial crisis of 2008, AT&T shares underperformed and have moved sideways since.
On the bright side, AT&T does pay a 7.2% dividend yield. Including dividend payments reinvested, the return of 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.
AT&T appeals in good financial shape, generating over $25 billion in free cash flow over the last year. It has nearly $17 billion in cash.
However, revenue over the trailing twelve months (TTM) hit $175 billion as of Oct. 3, 2020. That's down 3% year-over-year. As well, its operating margin comes in at 13.8%, versus top competitor Verizon's (VZ) 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.