R.I.P., AT&T

As Ma Bell's once-mighty stock heads into the sunset, how did its long-term investors do over the years? Actually, not too poorly

By Amey Stone

Investors will never see another stock like AT&T (T ). Such wistful thinking (some would say wishful), doesn't refer to the post-breakup, struggling AT&T of the past 20 years, but rather the huge and profitable AT&T of the '60s and '70s. Sure, it was a monopoly, but it was also Ma Bell, the ultimate widows-and-orphans stock, and a core holding in the portfolios of millions of Americans.

"AT&T was at one point the most widely held stock and the largest and most respected company in the world," says Jeremy Siegel, a professor at Wharton University, who studied the long-term returns of AT&T and the other charter members of the Standard & Poor's 500-stock index in his upcoming book, The Future For Investors. "It really shows how the march of technology can change the landscape in ways that would be unimaginable just 20 years earlier."


  AT&T's 130-year history as an independent company is now coming to an end. In a cycle reminiscent of the typical American family, the aging parent is being taken in by its far larger and more successful offspring. On Jan. 31, SBC (SBC ), one of the seven original regional Bells that came out of the 1984 breakup, announced it was acquiring AT&T for $16 billion. The dollar amount seems puny compared to other epic mergers this year and doesn't begin to reflect AT&T's storied place in American history.

"The fact of the matter is that it's not a very big company anymore," says Chuck Carlson, editor of the newsletter DRIP Investor and publisher of tax-calculation software for long-time AT&T investors. Many shareholders, who've weathered a staggering 80% drop in AT&T's value in the past five years, aren't bemoaning the loss of Ma Bell (the SBC deal is subject to approval by regulators and AT&T shareholders, but is expected to go through). "A lot of investors lost sentimentality on that stock a long time ago," says Carlson.

That doesn't mean investors who held the stock for decades have done badly. If you put $1,000 in AT&T's stock in 1984 just prior to the breakup, you would now have $4,400, figures Carlson. That's about a 7% return (not including reinvested dividends) and is comparable to a 9.85% return for the S&P 500. Including dividends, the returns would be closer, he says. "People did better than they think, but they still underperformed the S&P, says Carlson.


  That $4,400 return is made up of about $1,330 in SBC stock, $830 in Verizon (VZ ), and $760 in BellSouth (BLS ). You'd also hold some Comcast (CMCSA ), Avaya (AV ), Vodafone (VOD ), NCR (NCR ), Quest (Q ), Lucent (LU ) and Agere Systems (AGR.A ). Siegel notes that investors who held AT&T and all its descendants also benefited from some extra diversification from holding many more stocks (even if they're all in tech and telecom) without incurring major transaction fees or tax consequences.

Go back nearly 50 years, and AT&T investors have even less to complain about. Seigel, with the help of graduate assistant Jeremy Schwartz, has studied AT&T's returns going back to 1957 -- when the S&P 500 index was originally formed and AT&T was the largest-market-cap stock in the world (at $11.2 billion). Including all its descendants (which have done better than the parent by 3 percentage points a year on average), AT&T delivered a 10.5% annualized return through the end of 2003, just a bit worse than the 10.85% return of the S&P 500, Seigel and Schwartz found. That means $1,000 invested in AT&T in 1957 would have grown to $107,160. Not bad.

This long-term performance shows how even investors who pursue a buy-and-hold strategy over decades still do quite well and can actually end up owning cutting-edge businesses as the original companies evolve with the times, observes Seigel. Remarkably, his research shows that a portfolio of the S&P 500's original names (and all their descendants) would have outperformed the reconstituted index over that time.


  Rosy findings from such a lengthy look back at AT&T's stock may be little consolation for investors who suffered with Ma Bell through the last 15 years. AT&T rose steadily from the mid-$30s at the start of the 1990s, spiked to a high around $125 during the telecom boom years, and began a plunge in 2000 that took it all the way down to $13.50 by August, 2004. The stock closed Feb. 15 at $19.55.

"There may be some investors that still have an emotional attachment to it," says Peter Cohan, an investment strategist and author in Marlborough, Mass. "But the reality is that what the AT&T name stood for -- where it was the safe stock to own for the long-term -- disappeared about 20 years ago." Even though some investors will probably cheer, the day AT&T stops trading will nonetheless mark the end of an era.

Stone is a senior writer for BusinessWeek Online in New York

Edited by Beth Belton