visit the morningstar.com site to look up AT&T (T) and Verizon (VZ) information. In the ‘Dividends’ page for AT&T, search for the most recent quarterly dividend based on the ‘ex-dividend’ date. You will see that it is $0.52. Since companies pay dividends quarterly, it means AT&T has declared it will pay a total of $2.08 in dividends over the next year (or four quarters). In the ‘Dividends’ page for AT&T, you can see that the company paid a dividend of $1.77 in 2012 and $2.08 in 2020. That implies a dividend growth of about 2.04% over these five years calculated as: (2.08/1.77)^(1/8) – 1. The caret ‘^’ denotes ‘raised to the power of’ in the mathematical expression. Recently, AT&T stock is trading in the range of $26 to $34 per share. Using the current price for AT&T you see on morningstar, the expected dividend of $2.08, and assuming that the company can maintain the dividend growth of 2.18% per year indefinitely, use the Constant Dividend Growth formula to calculate what the implied rate (discount rate or required rate of return) is for AT&T based on the current stock price. Do the same exercise for Verizon. Which stock has the higher implied discount rate? Does that make sense to you? Which stock appears to be cheaper and why?
