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AT&T Inc. (NYSE:T) has long been a favorite of income investors due to its high dividend yield, which currently stands at an impressive 6.15%. But how long would it take for an investment in AT&T to double if you were to reinvest your dividends? Let’s explore several scenarios to answer this question.
Scenario 1: Stable stock prices and dividend
If AT&T’s stock price and dividend remained constant and you reinvested all quarterly dividends in more shares, it would take approximately 11.5 years for your investment to double. This closely matches the “rule of 72”, which estimates the doubling time by dividing 72 by the annual yield (72 / 6.15% ≈ 11.7 years).
For example, an initial investment of $10,000 would increase as follows:
Year 0: $10,000.00
Year 5: $13,568.42
Year 10: $18,410.21
Year 12: $20,800.34
As we can see, the investment would exceed the $20,000 mark, doubling just after 11 years.
Scenario 2: Stable stock price with dividend growth
Now consider a more realistic scenario in which the dividend increases over time, even if the stock price remains stable. Assuming AT&T increases its dividend at the industry median growth rate of 2.5% per year, your $10,000 investment would grow to $20,166.90 after 11 years if all dividends were reinvested.
This scenario speeds up the doubling time slightly, demonstrating the power of even modest dividend growth when combined with reinvestment.
Scenario 3: Stock price growth and dividend growth
In our most optimistic (and perhaps most realistic) scenario, we will assume that the stock price and dividend will increase over time. If AT&T’s stock price appreciates an average of 3% per year and the dividend increases 2.5% per year, your $10,000 investment would more than double in just nine years, reaching $21,271.58.
Here is a breakdown of this growth:
Year 1: $10,915.00
Year 3: $12,913.72
Year 6: $16,591.95
Year 9: $21,271.58
This scenario shows how even modest growth in the stock price and dividend can significantly accelerate the doubling of your investment.
Considerations and conclusion
While these scenarios provide interesting insights, it is important to keep in mind that they are based on assumptions and past performance. In reality, stock prices fluctuate daily and dividend growth is not guaranteed. AT&T, in particular, has a complex history with its dividend, having cut it in 2022 following the Warner Bros. spinoff. Discovery.
Additionally, these calculations do not take into account taxes on dividends, which would affect the actual growth rate unless the investment is held in a tax-advantaged account.
The power of AT&T’s high yield is evident in all scenarios, demonstrating why it remains an attractive option for income-oriented investors. However, it is crucial to consider AT&T’s overall financial health, its growth prospects, and your personal investment goals before making any investment decisions.
Diversification is also essential. While AT&T’s yield is attractive, it’s generally not a good idea to rely too much on any one stock for income, no matter how stable it may be.
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