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AT&T Inc (NYSE:T) has long been a favorite among 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 multiple scenarios to answer this question.
Scenario 1: Flat Stock Price and Dividend
If AT&T’s stock price and dividend were to remain constant, and you reinvested all quarterly dividends back into more shares, it would take approximately 11.5 years for your investment to double. This aligns closely with the “Rule of 72,” which estimates the doubling time by dividing 72 by the annual yield (72 / 6.15% ≈ 11.7 years).
To illustrate, a $10,000 initial investment would grow 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 surpass the $20,000 mark, effectively doubling, just after the 11-year mark.
Scenario 2: Flat Stock Price with Dividend Growth
Now, let’s consider a more realistic scenario where the dividend grows over time, even if the stock price remains flat. Assuming AT&T increases its dividend at the sector median growth rate of 2.5% annually, your $10,000 investment would grow to $20,166.90 after 11 years if all dividends were reinvested.
This scenario slightly accelerates the doubling time, 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’ll assume both the stock price and dividend grow over time. If AT&T’s stock price appreciates by an average of 3% per year, and the dividend grows by 2.5% annually, your $10,000 investment would more than double in just nine years, reaching $21,271.58.
Here’s 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 highlights how even modest growth in both share price and dividend can significantly accelerate the doubling of your investment.
Considerations and Conclusion
While these scenarios provide interesting insights, it’s important to remember 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 spinoff of Warner Bros. Discovery.
Moreover, these calculations don’t account for 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-focused investors. However, it’s crucial to consider AT&T’s overall financial health, growth prospects, and your personal investment goals before making any investment decisions.
Diversification is also key. While AT&T’s yield is attractive, it’s generally not advisable to rely too heavily on a single stock for income, no matter how stable it may seem.
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