A check will be sent to TD Ameritrade tomorrow and should show up in the account this coming Friday afternoon. There will be enough cash in the portfolio, at that time, to purchase another position in the Roth Ira. ... That new position will be T.
The portfolio currently has a position in VZ and I want to add another high quality telecom.
The first thing I look at in the stock selection process is the company's financial strength. If a company doesn't pass this test, I go no further in my research.
I look for companies that rate a 1 or 2 for safety by Value Line, or a BBB+ rating or higher with Morningstar, or a B+ rating or higher with S&P Capital IQ.
Value Line shows a safety rating of 1, a Financial Strength rating of A++ and Morningstar shows a Credit Rating of A-. This is the type of company I prefer to own over the long term.
In looking at the company earnings, S&P Capital IQ shows operating earnings at 5.0%. I place telecom companies under the utility umbrella and a 5.0% earnings growth is a number I look for. So, T qualifies there as well.
Looking forward regarding total return results, S&P Capital IQ thinks that over the next 5 years T will show total annualized returns of 12.0%. Value Line thinks 12.0% is the low number and thinks T now has the potential to show a total annualized return of 14.0% on the high side.
When looking at valuations, T has a PE of 10.1 and the historical PE over the last 10 years has been 16.2. That would indicated that T is undervalued based on historical performance. However, Morningstar thinks T is fairly valued at $32.00 and Capital IQ thinks fair value is $29.10.
I am willing to buy "high quality" companies at fair value, and companies don't get higher grades for quality than what Value Line assigns to T.
According to Jefferson Research, a company who rates as one of the top companies for accuracy when assigning buy, sell or hold ratings for T, has a Buy rating at this time.
They list Earnings Quality as Strongest. ... Cash Flow Quality as Strong. ... Operating Efficiency as Strongest. ... Balance Sheet as Weak, but up from Weakest. ... Valuation as Least Risk.
In looking at their Balance Sheet rating, they say T shows the ability to pay its bills and fund future growth. Their cash position has increased from $1,480M to $3,445M and with more cash on hand, T is better able to meet its financial obligations including its dividend. T has increased the amount of current assets relative to current liabilities.
Fidelity has an analysts rating system called StarMine who shows an Equity Summary Score (ESS) for each company. The ESS system rates various investment firms for their accuracy in making buy, sell or hold calls for the following 6 to 12 months after they make their call.
The ESS system then takes the views from the various investment houses and comes up with a score from 1 to 10.
9.1 to 10 = Very Bullish
7.0 to 9.0 = Bullish
3.0 to 6.9 = Neutral
1.1 to 2.9 = Bearish
Below 1.1 = Very Bearish
I have been tracking T for a couple of months and back on 12/23 the rating was 5.5. The rating rose in January and on 1/30 the rating was 6.8. Following the most recent earnings report, the rating has risen to 8.5 ... Bullish.
Value Line has a Timeliness Rating from 1 to 5 with 1 being best. Anything rated 1 or 2 for Timeliness means they expect the company to outperform the other companies they cover over the next 6 to 12 months. They assign T a rating of 2.
So, ESS and VL say now is the time to purchase T. Since T meets most of the metrics required, the only thing left is the yield and dividend growth.
T has raised the dividend for 8 consecutive years. It has a current yield of 5.60% which is well above the minimum requirement. It's 5 year compounded annual growth rate of the dividend is 2.37%.
When I'm looking at utilities, and I place telecom under the utility umbrella, I look for a total dividend return (yield plus 5 year dividend growth) of 8.0%. ... T currently has a rating of 7.97%. It's close enough for me given the high quality of this company.
With this in mind, as soon as the funds hit the account, T is the next purchase!