Motley Fool: Blue-chip powerhouse

If you’re looking for a solid stock that offers dividends and the prospect of growth, consider the country’s largest telecommunications company, AT&T (NYSE: T). Because its main business produces a reliable stream of income, the company’s earnings (and its stock price) tend to be significantly less volatile than average. AT&T has a stellar track record of returning value to shareholders, has a sturdy business with significant growth opportunities ahead, and has recently been appealingly priced.

Despite challenges from lower-priced competitors, premium wireless phone service is a proven draw, and AT&T’s advantage over budget-priced offerings will probably become more pronounced when 5G mobile technology rolls out and spreads. AT&T is also in a position to be a leading service provider for connected cars and other Internet of Things applications, and its pending acquisition of Time Warner should turn it into a content powerhouse – opening up a range of bundling opportunities.

AT&T’s dividend payout recently yielded 5.8 percent, and with its ample free cash flow, the company is poised to continue increasing its payout regularly. Indeed, its dividend history features 33 years of annual increases that it’s surely keen to maintain.

With a hefty dividend, a relatively low price-to-earnings ratio and a leadership position in the wireless world, AT&T stands out as a promising choice for long-term investors. (The Motley Fool has recommended Time Warner.)

Ask the Fool

Q: What are venture capitalists? – F.M., Detroit

A: Venture capitalists invest their pooled money in fledgling companies, helping them get off the ground. Some “VC” companies specialize in certain industries or areas, such as computer-related technology or biotechnology.

Young companies will often get early funding from venture capitalists well before they sell shares of stock on the open market via an initial public offering. The VC company will typically offer guidance as well as money, usually in exchange for a partial ownership stake in the company. The hope is that once the company grows to a certain point, it will go public and the venture capitalists can cash out, making a tidy profit.

Famous VC companies include Accel Partners, which funded Facebook, Etsy and Spotify, among others, and Kleiner Perkins Caufield & Byers, which has funded companies such as Amazon.com, Twitter and Snapchat. Sequoia Capital, another, seeded PayPal, Airbnb and Instagram, while Andreessen Horowitz funded Foursquare and Pinterest.

Q: Should I move money into bonds when stocks fall, and vice versa? – L.K., Greenwood, South Carolina

A: Do that and you’ll be selling low instead of buying low and selling high. A better strategy is to decide how much of your assets you want to keep in bonds. Young people might want to be close to 100 percent in stocks, while those near or in retirement might want to move a portion of their nest egg into bonds. Stick with your desired allocation until you have a good reason to change it.

Diversification can be beneficial, as when one asset category loses ground, the other might offset the loss – but that doesn’t always happen. Also, over the long run, healthy fallen stocks tend to recover.

My dumbest investment

At the age of 25 or 26, prior to buying a house and with the hopes of children on the horizon, I wanted to have life insurance. I ended up with a $100,000 whole life policy. Two big advantages were that it would pay interest, with a guaranteed minimum return. A couple of years later, though, I noticed that the cash value had not built up very much. Reading the fine print I’d glossed over initially, I found many troubling details. For example, much of the first few years’ gains went to the agent as a commission. I realized I would have been better off with a term policy. Also, at the time, I wasn’t maxing out my 401(k) to get the full match. Now THAT would have been a better investment. Overall, I learned that a tax-free or tax-deferred crappy investment is still a crappy investment. – T.B., online

The Fool responds: Term life insurance is better than whole life insurance for many people, because it’s less costly and is in effect only when you need it. Whole policies are more complicated, as they’re part insurance, part investment. You can often do better just buying the term insurance you need and investing on your own. Also, note that you may not need any life insurance if you’re young, childless and house-less. Life insurance is mainly for when anyone depends on you financially.