As the top executives of corporations often possess much more knowledge about the industry and the companies they are running, I often pay close attention to insider transactions. However, insiders might buy or sell stocks for a lot of reasons, including personal expenses or even just to create noise in the market. Thus, investors should look at the business fundamentals, along with the insider transactions to determine the attractiveness of a particular stock.
At the end of July, Director Michael McCallister of AT&T Inc. (NYSE:T) spent nearly $320,000 to purchase 9,000 shares of the company. Should we follow AT&T Inc. (NYSE:T) insiders into the company? Let’s take a closer look.
Second quarter growing performance and juicy yield
AT&T Inc. (NYSE:T) has reported a growing operating performance in the second quarter 2013. Its revenue came in at $32.1 billion, 2.6% higher than the revenue of $31.3 billion, excluding Ad Solutions’ revenue, in the second quarter last year. Both the wireline and wireless business experienced growth at 2.4% and 5.7%, respectively. The EPS was $0.71, a year-over-year increase of 7.6%.
What I like about AT&T Inc. (NYSE:T) is its strong cash flow and decent cash return to its shareholders. The second quarter free cash flow reached $5 billion, while AT&T has returned more than $5.7 billion in cash to shareholders in the quarter.
For the full year, AT&T Inc. (NYSE:T) expects the continuing growth in wireless service and wireline consumer with revenue growth of more than 2%. Its EPS growth is estimated to be in the upper-single digits or higher. AT&T has always been a great stock for income investors, with consistently increasing dividends. Its dividend per share increased from $1.16 in 2003 to $1.77 in 2012. It is trading at $35.70 per share, with the total market cap of $190.40 billion. The market values AT&T Inc. (NYSE:T) at around 9.28 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). It offers investors quite juicy dividend yield at 5%.
In June, AT&T reduced its stake in America Movil SAB de CV (ADR) (NYSE:AMX) by 7.5% by selling shares in the open market in the period of May 7 to June 4. The move brought in $564 million. Interestingly, as billionaire Carlos Slim kept repurchasing America Movil shares, AT&T still hold the same 9% stake in America Movil SAB de CV (ADR) (NYSE:AMX) after the sale.
In February, America Movil dropped significantly from $25.55 per share to around $19 per share. The sudden dramatic drop was due to Mexican president Enrique Pena Nieto’s bill to break up its monopoly position in Mexico. Carlos Slim has taken advantage of the low share price to buy back the company’s shares on the market.
America Movil SAB de CV (ADR) (NYSE:AMX) is a major communication player, operating in 18 countries in Latin America. It has the biggest market share in three countries, Mexico, Colombia and Ecuador and is the third biggest player in Brazil.
The company is quite bullish about its aggressive deployment move for 4G. It reported that it already has 4G covered in 11 cities in Mexico and 18 cities in Brazil. The company planned to build a common 4G platform in Latin America soon. It was not about the electronics with 4G, but the underlying fiber platform.
Value investors might prefer America Movil SAB de CV (ADR) (NYSE:AMX) over AT&T with its much lower valuation. It is trading at around $21 per share, with the total market cap of $75.70 billion. The market values America Movil SAB de CV (ADR) (NYSE:AMX) at 5.5 times its trailing EBITDA. Its dividend yield is much lower, at only 1.60%, but with a low payout ratio at only 12%. Despite AT&T’s high dividend yield, what worries investors is AT&T’s high payout ratio at 131%.
If America Movil only pays 100% of its earnings in dividends, its dividend yield could reach as high as 13.3%.