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AT&T: A Rare, Post-Recession Buying Opportunity

AT&T (NYSE:T) currently yields 5.74%. When you purchase the stock, you are essentially buying the dividend. The earnings per share growth has been 1% annually over the past five years. Before the recession, AT&T was making $2.76 per share, and now only makes a little over $2.50 per share. It's an interesting question for prospective shareholders: What place do companies with high dividends and minimal growth have in a portfolio? Although this answer will vary based on individual and family circumstances, there is one thing that is abundantly clear: You have to get the valuation right.

With companies that grow profits at 15% to 20% annually, it is not the end of the world if you pay 30x earnings or 40x earnings because the earnings per share growth will bail you out from encountering adverse consequences. With slow growth companies, you can't afford to overpay. The earnings only inch forward a bit at a time, and P/E compression can instantly take away years of gains. The reason why AT&T has recently caught my attention is that the company's P/E ratio has come down to an intriguing level. It is especially interesting on a relative basis, as we are almost six years into a bull market that has seen many high dividend stocks trade at P/E ratios well above what they should be. Read more