AT&T (T), or Southwestern Bell, one of the Baby Bells, seems like a good investment. It is a 34-year-old company that was spun off from the original AT&T Corporation, which was founded 133 years ago. AT&T is a $225 billion company that earned $30 billion last year on revenue of $161 billion. AT&T yields 5.45%. It has cut its dividend at various times in the past. For some reason, as of the 2017 year-end 10-K, it tacked on another $48 billion in long-term debt, $30 billion more than usual. This gave the company $50 billion in cash when a year ago it had 10x less than that. With this addition in cash and total debt of $300 billion, it is pretty well capitalized compared to its peers in the sector. It continues to earn more cash than expenses.
Verizon Communications Inc. (VZ), or Bell Atlantic, another one of the Baby Bells, is a $196 billion company that earned $31 billion on revenue of $126 billion. Verizon currently yields 4.91%. With $2 billion in cash and $210 billion in total debt, its capitalization is the worst. However, it continues to generate a substantial amount of cash.
CenturyLink (CTL), which bought US West in 2010, another one of the Baby Bells, is a $19 billion company from Monroe, Louisiana that earned $1 billion on $18 billion in revenue. CenturyLink currently yields a fat 12.00%. It has the same capitalization as Verizon but yields almost 3x more! However, it has cut its dividend in the past. It has $600 million in total cash and $42 billion in total debt. Given that this company is 88 years old, it should be able to service its debt, albeit, the dividends may be unsecure given its recent acquisition of Level 3 with additional debt. Future prospects unknown.
Since these three companies are the top three companies in their industry, we suggest holding all three, since they must continue to operate. They also all boast considerable yields. If you invested in all three evenly, your average annual yield on your telecom fund would be 7.45%, given today’s payouts. Not to mention the top two are selling bellow 8x earnings. In fact, we have invested in all three for our US-BIFS fund 7 months ago, when their yields were even higher. Without including capital appreciation, it has continued to yield a high amount on invested capital. We would expect the total value of the fund to decrease if any or all of the three companies should reduce their dividends. However, since we own all three, on average, we should continue to gain on quarterly dividend payouts. The three companies have been accommodating the industry of telecommunications for over a century. They seem pretty decent in terms of allocating your capital towards adequate, low-risk, highly probable, with a high level of confidence, annual returns.
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