AT&T Stock (T Stock) meets all the criteria of the type of stock I would include in my US Portfolio. The purpose of this article is to explain my stock selection process and how I decide on the put strikes I will sell and when necessary covered call strikes if assigned AT&T Stock shares. AT&T Inc has a market capitalization of 166.3 Billion Dollars. It is enormous in size and scope. AT&T Inc is a holding company with operations throughout the United States and worldwide. Their operations include long-distance services, data/broadband, internet, video, networking, wireless communications, land-line communication, directory advertising and publishing.
AT&T Stock earnings (T Stock) so far this year (Nov 2011) are $1.97 per share. Cash flow is $5.18 per share and book value is $19.18 per share. Profit margin is 9.53% and the annual AT&T Stock (T Stock) Dividend is presently $1.97 per share. To say AT&T Inc is large would be an understatement. Below are the AT&T Stock (T Stock) Financial Fundamentals as of November 2011.
AT&T Stock (T Stock) Financial Fundamentals as of November 2011
While the above fundamentals certainly make AT&T Stock interesting, there are two other reasons that I find just as important as the fundamental reasons above.
1) AT&T Stock (T Stock) Dividends
AT&T Stock has seen annual dividend increases for more than 25 years. On the chart below I have marked the dividend back in 2002 which was .25625 and now in 2011, .43. Even in the Oct 2008 meltdown the dividend was .40 cents. In 1984 the dividend was .1167. Select this AT&T Stock link to view a dividend chart back to 1984.
2) AT&T Stock (T Stock) Range Bound
As many regular readers know, I look for range bound stocks that have strong dividends and good earnings. AT&T Stock fits that profile. From 2002 to 2006, T Stock traded in a narrow range. Since 2008 that range has re-appeared.
I take the stock and plot out the high and low ranges for the year. In the case of AT&T Stock that would be between $31.00 on the high side and $23.50 on the low. Therefore based on the range, I can select between $25 to $28.00 to look to put in place a strategy of put selling and if assigned shares, to sell covered calls.
AT&T Stock – Trading Strategy In Use
The strategy based on the above chart will be put selling and covered calls. With the range I have marked between $25 to $28 I will start put selling at the low-end of the range. This means I will be selling puts at the $28.00 and lower strikes. If I am assigned shares I will sell covered calls at the higher end of the range, meaning $28.00 in order to be exercised out of T stock and then repeat the process.
The importance of having a plan when investing is important. By having set my AT&T stock trading range above and my T Stock strategy there is no need for emotion to enter my trading.
The Importance of Charting Risky Assets Like AT&T Stock
I cannot emphasize enough the importance of doing a little homework before investing in any risky asset such as AT&T Stock (T Stock). That homework has to include a study of the historic chart patterns. The process I use on AT&T Stock can be used on any stock. My strategy is put selling and then covered calls once assigned shares. Once I am exercised out of those shares I repeat the process. By looking into the past and establish a trading range such as I have done with AT&T Stock above, an investor knows IN ADVANCE what put strikes they are willing to sell and therefore willing to accept shares at. With the use of a trading range, an investor knows better than to CHASE THE STOCK UP as it moves higher. Instead the investor can sell puts at the top of the trading range BUT NOT ABOVE IT. Based on the trading range chart an investor then knows that if they are assigned shares within that trading range, they have a better than average chance that:
1) They will not lose capital as the stock should return to that trading range.
2) They are not selling puts at too high a price thereby possibly ending up owning shares at over-valued prices making selling covered calls difficult.
3) If they are assigned shares within the trading range, they have a very good chance that there will be good premiums on the covered calls and they will be exercised by their shares allowing them to repeat the process.
The most important aspect of investing in risky assets such as AT&T stock (T stock) or any stock for that matter is capital preservation and appreciation. If an investor continually sells puts or buys stocks at over-valued prices they are increasing the odds that they will lose capital and any profits made will be lost. Put selling on stocks like AT&T Stock (T STock) requires having a plan and doing a bit of homework in advance of risking your capital.