On CNBC last week, a financial analyst/TV pundit went on air and said, “We are bearish on AT&T—it hasn’t grown its profits at a rate above inflation in a very long time. We don’t have it in any of our client portfolios.” Now, the statement by itself isn’t necessarily indicative of poor investment thought—I would imagine an investment portfolio consisting of Franklin Resources, Nike, Visa, Disney, and Becton Dickinson would create more aggregate wealth than AT&T stock.
Discussing the telecom giant’s 2% growth rate in isolation does paint a picture that would blend in with what the analyst said. But there is a catch: it’s not the whole picture. It’s like only talking a supermodel marrying an overweight old person without disclosing the fact that the person is also sitting on a million-dollar fortune. The totality of the facts affect your judgment of an action. In the case of AT&T, the important fact that often gets ignored is this: the starting dividend yield is often above 5%, and it grows (albeit slowly) each year. High dividends, perpetually reinvested upon themselves, can overcompensate for slow growth.