Neil Macneale has a unique strategy within the financial advisory industry; he maintains a model portfolio based on buying stocks that have announced splits — hence the name of his advisory, 2-for-1.
There were twenty-one 2 for 1 or higher splits in 2018. We bought four of them and one we already owned it. Most companies were passed over because they were too small. Over the course of the year we also bought one 3 for 2 split, and one 6 for 5 split.
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In addition, we added four companies we liked despite the lack of a split of any kind. Boards of Directors seem to have backed away from stock splits over the last several years and the slow-down in split announcements has forced me to innovate.
However, there will probably continue to be a few splits from time to time and, as long as the portfolio is heavily weighted with those companies, we will continue to benefit from the stock split advantage.
I am still waiting for a good split announcement. While we wait, we are recommending AT&T (T), which seems a relatively safe bet. At around $30 per share, it’s unlikely the stock will be splitting any time soon. However, there are numerous other reasons to add it to the portfolio.
AT&T is widely known as the dividend king, yielding 6.6% at the moment, with most analysts believing this payout remains a relatively sure thing.
The company has raised its dividend for 34 consecutive years and it remains fully covered by free cash flow. Even if the dividend were cut in half, it would still be paying out more than average for most companies.
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Other numbers also look good. AT&T has a P/E of 15 and a price-to-book ratio of 1.2. With a beta of 0.45, it is significantly less volatile than the market.
The stock price took quite a pounding last year; the assumption being that the Time Warner merger would be hard to digest and the increased debt load would hamper the company’s ability to grow. Those fears have receded as AT&T begins to roll out its 5G capabilities in select markets in the eastern USA.
AT&T is an old company, descended from the Bell Telephone Company established in 1879 by Alexander Graham Bell. It has survived through the anti-trust breakup, numerous divestitures and mergers, in addition to coping with ever accelerating technological change. I’m counting on at least a few more years of profitable business.
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