Dividend stock: AT&T Inc.
And here comes one of the more interesting stories.
This story could be called “How a dragon got shoved back to his cave”. We like to call AT&T a dragon who got his fire completely put out because the power it had and the flames it could produce were pretty large but it got crushed by an even higher authority.
Mostly by the government.
Although often times one tends to forget how an invention such as a telephone or a mobile network came to life. That’s exactly what we are going to be getting deep into here, a story of a dragon who had been crushed.
AT&T. Little does the latest generation know about how influential and powerful this corporation used to be. From the very beginning of our beloved telephone this company had been the innovator, the disruptor, the leader and friend of everybody in the industry.
This company had built the american mobile system and brought the telephone to people’s homes. The impact of AT&T should be and will be remembered by some for a long time.
Even today, after all these regulations and legal troubles this company had to go through, it is still one of the largest telecom businesses in the United States.
It all started back in 1876 when the first ever phrase was told through a telephone. That phrase came out of the mouth of no one else but Alexander Graham Bell’s, arguably the man who invented the telephone (There had been other great players in this field at that time).
AT&T would become the company first owned by this man and have much influence in the future.
The invention was absolutely great but someone had to fund it. Luckily enough, soon after this “Eureka!” moment for Alexander Graham Bell, some sophisticated investors had been eager to put money into the invention.
One of the names of these early investors that we should remember was none other than J.P. Morgan himself who had always been known to be working with the latest inventions and endorsing them. J.P. Morgan is known to have backed people like Thomas Edison and George Westinghouse.
He even backed up America during a crisis.
The company was formed. It was called “The Bell Telephone Company” and later on, the inventor had decided to form another company called “The New England Telephone Company“. Their plan was to start licensing the telephones to other companies located all around the United States and that is what worked for them as well.
Alexander Graham Bell was not a businessman himself at all. He just wanted to get back to inventing more great tings and as a result, decided to sell his share in both companies and do just what he wanted to.
“The Bell Telephone Company” and “The New England Telephone Company” had not been the only ones to emerge in the telecommunications business.
AT&T is known to be more of a conglomerate of companies, more on why that is later.
The business model for the telecom companies was not that clear at the time, they had been licensing the telephones and networks either directly to the government entities or just local post offices on the american land. Therefore, the competition soon arose.
Different operating companies were formed in the untouched locations which the first original companies were not able to reach.
As a result, there was no other option for “The Bell Telephone Company” and its subsidiaries than start licensing their telephones to these newly built companies.
After their contracts with these newly companies expired, they had the option to buy the property on which the business was operating. There had also been such things as the telephone network territories like “Northwestern Bell” or “Mountain States Bell“.
These telecommunication territories had their own laws and regulations on how newly formed companies and the already operating ones could do business. They looked somewhat like international waters divided for different countries or continents.
Each territory had certain states under its wing that were solely dependent on the regulations that its territory had.
Because of the strict regulations that each territory had, most notably not allowing telecom providers connect with states in other territories, long distance calls were nearly impossible.
Having all these territories and and regulations for them, The Bell Telephone Company was now able to capitalize on all these restrictions it had put on the competition and start building an independent mobile network that it would own entirely.
As a result of having this independent network, now AT&T (American Telephone & Telegraph) was now able to have these long distance calls which its competitors had not been able to provide at that time.
The quality of these long distance calls was quite terrible at that time and changes had to be made.
This is where J.P. Morgan steps in once again and buys the whole company, realizing its potential future growth and impact. The influential banker had put his preferred individual to run the company, Theodore Newton Vail.
With new lead at hand, AT&T had soon built a network of research laboratories called, of course, The Bell Laboratories which had produced incredible amounts of innovation and new technology.
The Bell Laboratories now still remain one of the most famous research centers on the planet. Wouldn’t have been possible without J.P. Morgan.
As mentioned earlier, once the contracts with other, local telecom companies had expired, AT&T was able to buy them out. And it did just that, a lot. Now this corporation was able to acquire hundreds of telecommunication companies and have the largest, almost absolute share of the market.
An almost absolute share of the market means 98% of all telecommunications provided in the United States.
So the monopoly was born, what happened next?
AT&T then also acquired a company called Western Electric in the late 1800s which had provided massive amounts of help in the research and network optimization.
Not long after that, the First World War came and the demand for short, and even more importantly, the demand for long distance communications started piling up like never before. That resulted in immense profits for the company as there was such small amount of competitors which could take care of this.
The same thing happened during World War 2.
Then, the Cold War was starting to emerge and the US-Soviet space race had been in an immediate need for great network providers which the United States would be dependent on for the next few decades.
We also shouldn’t forget the spies who needed great communication tools. The demand was rising for the military even more as time went by.
Situations like the Cuban Missile Crisis might have gone way worse if there had not been a way for both, the US and the Soviet Union leader to communicate successfully.
But how about today, where is AT&T now and what about investing in it from both a retail or an institutional investor’s side?
Some important facts to be aware of are that the company, as mentioned earlier, had some serious legal troubles with the government as it was practically the only telecommunications provider at that time.
Despite its achievements of innovation, work with NASA and service for the society, it still had too much power according to the government and just had to be harshly regulated.
Regulations for the company began when it was faced with an order from the government to stop providing television network services.
However, the company still held massive power in the telecommunications industry to the lawsuits and regulations from the government was not stopping.
This fight between a monopoly and the government had lasted around 8 years and finally, in the early 80s, AT&T was taken apart into 7 different telecom companies including BellSouth, Pacific Telesis, Ameritech, Nynex, Bell Atlantic, US West and Southwestern Bell.
Nynex and Bell Atlantic then soon merged and became Verizon Communications as we know it today. SBC had also acquired 4 newly formed companies out of those 7 including AT&T. The 1950s regulations were still not letting the company not only do television network services but also computers.
After much work, the company could finally get the approval to jump into the computer market. Unfortunately the company was not successful building computers and accessories for them and soon had to get back and concentrate on the mobiles.
Thinking about AT&T today, it is still one of the largest telecommunications providers in the United States and beyond. Recently the company acquired a television network called DirecTV which is quite successful and provides its audience with popular shows.
There has been a spike in the company stock because of that as well. In 2018 it had acquired TimeWarner, one of the largest television network companies in the US, having networks such as DC Comics, Warner Brothers, CNN and more.
Although there is one small problem for AT&T. Not many people are buying its stock. Even after lots of political donations, getting more friendly with the government, acquiring such companies as DirecTV and TimeWarner, owning HBO Max, the stock is just not attractive to most people.
The stock had its peak in the early 2000s but after that it just went down to its average price of the stock and stayed that way for more or around 18 years. It is still a technology stock being traded in the New York Stock Exchange (NYSE) and even a stay-at-home stock but has no hype at all.
To conclude, it needs to be said that AT&T is still a great company that pays probably the highest dividends there are. The dividend yield of the stock is more than 7,4%, which is insanely high.
Although it does not seem to grow and be bought that much, it is still stable and gives way better returns than any bank interest rate out there. And it is not overvalued at all. With a history of more than 100 years, the corporation has a market capitalization of around 200 billion dollars.
However, there are still many negatives out there in the company and its business model.
Well, anyone who likes dividends should get closer to AT&T. The dividend yield is, in some cases, 3 or more times higher than any other company’s. There is still a lot to work on for it but we hope this wonderful company who had build the american telecom network thrives and innovates even more in the future.