Dividend Aristocrats Part 51: AT&T

AT&T (T) is the largest telecommunications company in North America based on its $281 billion market cap.

The company’s high dividend yield and long history of dividend increases make the company a favorite holding for many dividend investors:

A&T’s stock price is more stable than average. The company’s 10 year stock price standard deviation and beta are below:

The company offers investors high yields along with lower-than-average stock price risk.

AT&T has outperformed the market over the last decade. $1 invested in AT&T 10 years ago would be worth $2.31 today versus $1.80 for the same investment in the S&P 500 (SPY).

For a company to have paid increasing dividends for 32 consecutive years, outperform the market over the last 10 years, and be the largest player in its industry, AT&T must have a strong competitive advantage.

AT&T’s Competitive Advantage

The United States wireless telecommunications market is dominated by 4 companies:

Together, these 4 companies have greater than 90% market share. AT&T and Verizon each have over 30% market share.

Competition is reduced when an industry is dominated by only a few large businesses. Lower competition is not good for consumers, but great for the few dominant businesses.

AT&T and Verizon in particular are large enough to reap outsized profits in the wireless industry.

There’s several reasons why the wireless industry is subject to domination by a few large corporations.

Wireless spectrum usage is controlled and auctioned by the United States government. AT&T spent $18.2 billion in the last spectrum auction. In total, the auction raised $44.9 billion for the FCC. The next auction will begin in March of 2016.