Portfolio Update
The FiveTwenty portfolio received $49.79 in dividends in the past week. GD and T paid their quarterly dividend during the week.
| Past Week Dividend | $49.79 |
| Current Quarter Dividend (Q2 2021) | $49.79 |
| LifeTime Dividend | $162.83 |
| Estimated Annual Dividend | $1,428.22 |
The capital allocation for the week of 05/09/2021 to 05/15/2021 will be used to add to our position in AT&T (NYSE: T).
T – Position Update
Since our last check-in on T in week 13 of 2021, the company reported Q1 2021 results on 04/22/2021. Additionally, the share price has appreciated 6.1% from $30.31 to $32.16.
| TTM | Prev. Update | 10-year median | |
| Dividend Streak | 36 years | 36 years | |
| Yield | 6.47% | 6.86% | 5.46% |
| Payout Ratio | 64%1 | 65.40%2 | NA |
| P/E | 10.051 | 9.532 | NA |
1computed using TTM adjusted EPS of $3.20 as of Q1 2021
2computed using TTM adjusted EPS of $3.18 as of Q4 2020
Q1 2021 earnings report
Did T’s latest earnings report raise any warning flags?
In Q1 2021, T grew revenues, cash from operating activities, and adjusted EPS over the same period a year ago. Higher revenues from the communications and WarnerMedia segments once again offset declines in the video segment. Overall, revenues grew 2.7%, cash from operations increased 11.2%, and adjusted EPS were 2.42% higher compared to Q1 2020.
| Revenue (in billions) | Cash from Operations (in billions) | Adj. EPS . | |
| Q1 2020 | $42.8 | $8.9 | $0.84 |
| Q1 2021 | $43.9 | $9.9 | $0.86 |
| % Change | 2.7% | 11.2% | 2.42% |
Additional noteworthy developments during the quarter:
- T saw solid subscriber growth for both the communications and WarnerMedia segments. HBO Max grew to 44.2 million domestic and 63.9 million global subscribers up from 41.5 million and 61 million at the end Q4 2021; and up from 33.1 million and 53.8 million a year ago.
- Interest expense declined $150 million in the quarter even though total net debt increased by $21.4 billion due to financing for C-band spectrum payments T made at the end of the quarter. T expects to reduce net debt for the remainder of the year down to ~3.0x adjusted EBITDA.
Looking ahead, the company expects revenue growth of ~1% for the year, adjusted EPS flat compared to 2020, and free cash flow of ~$26 billion resulting in a dividend payout ratio as compared to free cash flow of 50%. Additionally, management reiterated its capital allocation strategy consisting of: investing in strategic growth (5G, Fiber, HBO Max), sustaining dividend at current levels, utilized cash after dividends to reduce debt, and restructure non-core assets.
Thesis
Why are we adding to our position in T?
T’s communications and WarnerMedia core business segments performed well in Q1 2021. Furthermore, the impending launch of the ad supported version of HBO Max has the potential to accelerate the growth of the service and contribute materially to the overall growth of the business.
Additionally, today’s low rate environment should allow T to execute on its debt reduction plan while reducing it’s dividend payouts.