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Motley Fool: A fat dividend to consider

AT&T has raised its dividend annually for 36 consecutive years.  (Associated Press)
AT&T has raised its dividend annually for 36 consecutive years. (Associated Press)

You might think of AT&T (NYSE:T) as just a phone company, but it’s much more, offering cellphone service, internet service, satellite and streaming television service – and content, via its ownership of Time Warner.

The telecom giant’s stock was recently down about 15% over the previous five years, woefully underperforming the S&P 500’s gain of more than 50% over the same time frame. It has been struggling with an ongoing loss of pay TV subscribers, tough competition in the wireless market and a massive debt load from its acquisitions of DirecTV, AWS-3 spectrum licenses and Time Warner.

The stock’s lower price has pushed up its dividend yield, which was recently a whopping 7%. And the payout is reliable, as AT&T has raised its dividend annually for 36 consecutive years.

AT&T is committed to growing its free cash flow (FCF), while expanding its streaming ecosystem and paying down its debt. Its FCF rose 30% to a record high of $29 billion in 2019, exceeding its own target of about $26 billion. It fell 34% annually to $3.9 billion in 2020’s first quarter, though, as the COVID-19 crisis hit its media and wireless businesses – a headwind that won’t last forever.

AT&T’s investments in streaming media, the growth of its WarnerMedia segment and the potential divestments of noncore assets (like DirecTV) should draw the interest of long-term investors seeking income.

Ask the Fool

Q: For how long should I keep financial documents? – C.W., Asheville, North Carolina

A: Some financial records should be kept indefinitely, just to be on the safe side. These include your tax returns, insurance policies (if still in effect), pension-related or IRA contribution records, and estate-related items such as wills.

Keep supporting documents for federal returns (such as receipts and brokerage statements) for seven years (or longer if you didn’t file a return).

As long as you own your home, and for at least six years after you sell it, keep mortgage documents, records of any major work done on the home and paperwork related to buying and selling it. Keep receipts for costly purchases as long as you own them, in case you need to prove their purchase price to insurers.

If your bank and credit card statements seem correct, you probably don’t need them, but keep them for at least a year – perhaps download and store them online. Keep paycheck stubs long enough to make sure your end-of-year W-2 form is correct for tax purposes. Keep brokerage statements and trade confirmations as long as you own the securities to document your cost basis.

When discarding financial papers, consider shredding them to prevent any snoopers from taking advantage of your account numbers, Social Security number, birth date or other identifying information. When archiving records, be sure to back up all digital documents, and store papers in places that minimize the chance of theft or damage.

Q: What’s a “basis point”? – H.C., Chicago

A: It’s 1/100th of a percentage point, or 0.01%. One hundred basis points make up 1%. So if an interest rate has fallen by 50 basis points, it’s down half a percentage point.

My dumbest investment

My dumbest investment move was cashing out of many of my stocks way too soon. I’m still waiting for the correction I expected.

I learned this lesson, expressed by Peter Lynch, the hard way: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – C.M., online

The Fool responds: Selling too soon is an extremely common investor mistake, though it’s often understandable, as only hindsight is 20/20. It’s always worthwhile to ask yourself why you’re selling a stock. If it’s because you no longer have faith in it, because it seems very overvalued (and therefore likely to pull back), or because you found another stock that’s much more compelling, selling can make sense. But if it’s only because you think the overall market will fall soon, think again. The market does fall regularly, and occasionally severely, but no one can know just when that will happen.

Selling prematurely means you may well be out on the sidelines while the stock and overall markets keep rising. Expect pullbacks, and know that the market has always recovered from them, eventually.

As you know, soon after you sent us your story, the market did crash, in early 2020. But within months, it regained much of what it lost. If you’re torn between selling and hanging on, consider a compromise and sell just some of your shares.

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