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Members of High Yield Investor get exclusive access to our model portfolio.</li>\n</ul>\n<p>AT&T (T) is a prized dividend stock for many retirees and for several good reasons. The company has a long history of consistently raising its dividend year-after-year, and, despite interest rates plummeting, the dividend yield stands at one of its most attractive levels ever:</p>\n<p>Data by YCharts</p>\n<p>Meanwhile, the company is excited about its HBO Max business, which it believes will enable it to compete in the high-growth streaming business, which will help add growth to its collection of otherwise slow-growth or even shrinking businesses.</p>\n<p><img src=\"https://static.tigerbbs.com/0ec54f00b000550bd7abf30e458736e2\" tg-width=\"768\" tg-height=\"475\" referrerpolicy=\"no-referrer\"></p>\n<p><i>source</i></p>\n<p>While all of this is true - and we are not outright bearish on the company - we are nonetheless avoiding T in our portfolio for the following three reasons:</p>\n<p>#1. Massive Debt Burden</p>\n<p>In recent years, T has blown up its balance sheet through fool-hardy acquisitions. They wasted $67 billion on afailed acquisition of DirectTVwhich later forced them towrite offa whopping $15.5 billion of it, admitting a near 25% destruction of shareholder value on the transaction. They also made several billion dollars worth of other write-offs last year alone as they have made bad investment after bad investment.</p>\n<p>As a result, today they stand a staggering ~$169B in net long-term debt:</p>\n<p><img src=\"https://static.tigerbbs.com/7eb1ad70166998d0cc820e783e8edc53\" tg-width=\"635\" tg-height=\"403\" referrerpolicy=\"no-referrer\">Data by YCharts</p>\n<p>Ten years ago, they held roughly a third of that level of net long-term debt and twenty years ago, they held a small fraction of that debt level. Despite that, their EBITDA has not increased all that much over that span and has in fact remained flat over the past decade.</p>\n<p>Data by YCharts</p>\n<p>With such an enormous debt burden, T will be unable to respond opportunistically moving forward and - instead of improving capital returns to shareholders - it will have to make satisfying its debt masters top priority.</p>\n<p>#2. Weak Business Model</p>\n<p>Additionally, as its poor acquisition track record implies, T's businesses are mostly very weak and display poor profitability. As the chart below illustrates, T's return on invested capital and return on assets have been pretty abysmal, routinely hovering in the mid-single digits.</p>\n<p><img src=\"https://static.tigerbbs.com/51648e8248efb01d0de23d5eecb0bc96\" tg-width=\"635\" tg-height=\"419\" referrerpolicy=\"no-referrer\">Data by YCharts</p>\n<p>As a result, their spread on the debt they are taking on is very thin, leaving them little margin for error and failing to generate an attractive risk-reward for investors.</p>\n<p>Furthermore, AT&T's best businesses - HBO Max and Fiber - are technology-heavy and are therefore exposed to heavy competition. With its declining legacy businesses weighing on results and its heavy debt burden demanding ever-increasing amounts of attention and capital, it will be very difficult for T to be able to go toe-to-toe with financially stronger competitors in technological races.</p>\n<p>Given the heavy reliance on debt issuance to generate growth over the past decade, the very weak returns on assets and invested capital, the declining performance of many of its businesses, and the heavy technological competition facing T's few growth industries, we are not optimistic at all that T will be able to generate much growth - if any - in the years to come. This, in turn, will compound their debt problem by making it harder for them to naturally deleverage the balance sheet through growth.</p>\n<p>#3. Unattractive Valuation</p>\n<p>Even worse, T's fat dividend yield and apparently cheap share price are a mere mirage.</p>\n<p>Data by YCharts</p>\n<p>Many unsophisticated and unsuspecting retirees simply look at the dividend yield and the share price and think a company is cheap if the share price is near decade lows and the yield is near all-time highs. Furthermore, in a company like T which, until this year, had a 36-year dividend growth streak and has been a fixture in the American telecom industry for decades, many investors believe it is rock solid.</p>\n<p>Their 65% dividend payout ratio only further solidifies this sentiment as it gives off the impression that the dividend is very safe.</p>\n<p>Unfortunately, due to the aforementioned heavy debt burden, the cheapness of T's share price and the safety of its dividend are both illusions. While the share price merely reflects the market cap (i.e., equity valuation) of a company, a more accurate reflection of its current market valuation is its enterprise value (i.e., total sales price when including equity and debt).</p>\n<p>As you can see, over the past decade, T's enterprise value has outpaced its market cap by over three times, implying that shares are not nearly as cheap as they might imply on the surface.</p>\n<p><img src=\"https://static.tigerbbs.com/237e4dedc7880ce1dbb85d5f3af3f87a\" tg-width=\"635\" tg-height=\"419\" referrerpolicy=\"no-referrer\">Data by YCharts</p>\n<p>As a result, T's true valuation in enterprise value to EBITDA terms makes the company look very expensive on a historical basis:</p>\n<p>Furthermore, the dividend is not nearly as safe as the 65% payout ratio implies. In fact, ~98% of revenue is currently being consumed by expenses and the dividend, giving management a mere ~2% cushion to continue covering its dividend.</p>\n<p>While the business model is diversified and stable enough that this should be sufficient under current conditions, the simple truth is that the company's recent trends are not convincing that it is headed in the right direction. While the chart below does show interest expenses declining relative to revenues and EBITDA over the past quarter, this is an exception to the rule over the past five years, meaning that the company has much to prove in the coming quarters.</p>\n<p><<<图片加载中。。。>>>Data by YCharts</p>\n<p>Furthermore, inflation is surging, meaning that there will continue to be upward pressure on interest rates. With such a massive debt burden, if interest rates rise materially for an extended period of time, T will quickly see its dividend coverage erode as more and more cash flow is consumed by increased interest costs. As a result, management will be forced to shift priorities from supporting a large and burdensome dividend to diverting as much cash as possible towards paying down debt.</p>\n<p>Last, but not least, T's forays into streaming and fiber - while filled with growth potential - are also very capital-intensive. T will have to spend a lot of money to generate sufficient content to compete with the likes of Netflix (NFLX), Amazon (AMZN), Disney (DIS), and Apple (AAPL) in streaming wars and fiber infrastructure is very expensive to build out and faces limited barriers to entry. As a result of these capital demands, one or both of these business ventures may eventually push T to slash its dividend.</p>\n<p>Already, the company is signaling that its dividend is not as safe as some may think it is. On theirQ4 2020 earnings call, management announced the inevitable:</p>\n<blockquote>\n We plan to use free cash flow after dividends for the next couple of years to pay down debt. We remain focused on monetizing noncore assets and using those funds for debt reduction as well. We’re committed to\n <b>sustaining our dividend at current levels</b>, and we’ll give top priority to debt reduction, at this time.\n</blockquote>\n<p>While it is encouraging to hear them acknowledging their debt problem and announce initiatives to address it, the fact that they have to freeze their dividend at current levels despite being a proud Dividend Aristocrat is very telling.</p>\n<p>Investor Takeaway</p>\n<p>While T'sfirst quarter resultsmay have cheered some investors with strong HBO Max performance and improved performance in its core wireless and broadband businesses, we see the bigger picture issues as unchanged. The debt remains far too high, their growth businesses remain outclassed by competition with far more financial flexibility than them, and their EV/EBITDA is hardly what we would call cheap. Last, but not least, the main reason for investing in T (its dividend) has been frozen indefinitely while the company focuses on deleveraging. Given the growth challenges they face, we believe this might take a long time to accomplish and, if interest rates rise meaningfully for a sustained period of time, management will likely be forced to slash the dividend.</p>\n<p>All that said, T is not significantly overpriced and we are neutral on its risk-adjusted total returns moving forward. However, we simply do not find it attractive enough to add to our portfolio.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>3 Reasons To Avoid AT&T</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n3 Reasons To Avoid AT&T\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-07 13:23 GMT+8 <a href=https://seekingalpha.com/article/4424895-at-t-3-reasons-to-avoid><strong>seeking alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nT is a prized dividend stock for many retirees.\nWhile the yield is certainly attractive and the business model is quite stable, we are avoiding the stock.\nWe share three reasons why.\nLooking ...</p>\n\n<a href=\"https://seekingalpha.com/article/4424895-at-t-3-reasons-to-avoid\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"T":"美国电话电报"},"source_url":"https://seekingalpha.com/article/4424895-at-t-3-reasons-to-avoid","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1176438696","content_text":"Summary\n\nT is a prized dividend stock for many retirees.\nWhile the yield is certainly attractive and the business model is quite stable, we are avoiding the stock.\nWe share three reasons why.\nLooking for a portfolio of ideas like this one? Members of High Yield Investor get exclusive access to our model portfolio.\n\nAT&T (T) is a prized dividend stock for many retirees and for several good reasons. The company has a long history of consistently raising its dividend year-after-year, and, despite interest rates plummeting, the dividend yield stands at one of its most attractive levels ever:\nData by YCharts\nMeanwhile, the company is excited about its HBO Max business, which it believes will enable it to compete in the high-growth streaming business, which will help add growth to its collection of otherwise slow-growth or even shrinking businesses.\n\nsource\nWhile all of this is true - and we are not outright bearish on the company - we are nonetheless avoiding T in our portfolio for the following three reasons:\n#1. Massive Debt Burden\nIn recent years, T has blown up its balance sheet through fool-hardy acquisitions. They wasted $67 billion on afailed acquisition of DirectTVwhich later forced them towrite offa whopping $15.5 billion of it, admitting a near 25% destruction of shareholder value on the transaction. They also made several billion dollars worth of other write-offs last year alone as they have made bad investment after bad investment.\nAs a result, today they stand a staggering ~$169B in net long-term debt:\nData by YCharts\nTen years ago, they held roughly a third of that level of net long-term debt and twenty years ago, they held a small fraction of that debt level. Despite that, their EBITDA has not increased all that much over that span and has in fact remained flat over the past decade.\nData by YCharts\nWith such an enormous debt burden, T will be unable to respond opportunistically moving forward and - instead of improving capital returns to shareholders - it will have to make satisfying its debt masters top priority.\n#2. Weak Business Model\nAdditionally, as its poor acquisition track record implies, T's businesses are mostly very weak and display poor profitability. As the chart below illustrates, T's return on invested capital and return on assets have been pretty abysmal, routinely hovering in the mid-single digits.\nData by YCharts\nAs a result, their spread on the debt they are taking on is very thin, leaving them little margin for error and failing to generate an attractive risk-reward for investors.\nFurthermore, AT&T's best businesses - HBO Max and Fiber - are technology-heavy and are therefore exposed to heavy competition. With its declining legacy businesses weighing on results and its heavy debt burden demanding ever-increasing amounts of attention and capital, it will be very difficult for T to be able to go toe-to-toe with financially stronger competitors in technological races.\nGiven the heavy reliance on debt issuance to generate growth over the past decade, the very weak returns on assets and invested capital, the declining performance of many of its businesses, and the heavy technological competition facing T's few growth industries, we are not optimistic at all that T will be able to generate much growth - if any - in the years to come. This, in turn, will compound their debt problem by making it harder for them to naturally deleverage the balance sheet through growth.\n#3. Unattractive Valuation\nEven worse, T's fat dividend yield and apparently cheap share price are a mere mirage.\nData by YCharts\nMany unsophisticated and unsuspecting retirees simply look at the dividend yield and the share price and think a company is cheap if the share price is near decade lows and the yield is near all-time highs. Furthermore, in a company like T which, until this year, had a 36-year dividend growth streak and has been a fixture in the American telecom industry for decades, many investors believe it is rock solid.\nTheir 65% dividend payout ratio only further solidifies this sentiment as it gives off the impression that the dividend is very safe.\nUnfortunately, due to the aforementioned heavy debt burden, the cheapness of T's share price and the safety of its dividend are both illusions. While the share price merely reflects the market cap (i.e., equity valuation) of a company, a more accurate reflection of its current market valuation is its enterprise value (i.e., total sales price when including equity and debt).\nAs you can see, over the past decade, T's enterprise value has outpaced its market cap by over three times, implying that shares are not nearly as cheap as they might imply on the surface.\nData by YCharts\nAs a result, T's true valuation in enterprise value to EBITDA terms makes the company look very expensive on a historical basis:\nFurthermore, the dividend is not nearly as safe as the 65% payout ratio implies. In fact, ~98% of revenue is currently being consumed by expenses and the dividend, giving management a mere ~2% cushion to continue covering its dividend.\nWhile the business model is diversified and stable enough that this should be sufficient under current conditions, the simple truth is that the company's recent trends are not convincing that it is headed in the right direction. While the chart below does show interest expenses declining relative to revenues and EBITDA over the past quarter, this is an exception to the rule over the past five years, meaning that the company has much to prove in the coming quarters.\n<<<图片加载中。。。>>>Data by YCharts\nFurthermore, inflation is surging, meaning that there will continue to be upward pressure on interest rates. With such a massive debt burden, if interest rates rise materially for an extended period of time, T will quickly see its dividend coverage erode as more and more cash flow is consumed by increased interest costs. As a result, management will be forced to shift priorities from supporting a large and burdensome dividend to diverting as much cash as possible towards paying down debt.\nLast, but not least, T's forays into streaming and fiber - while filled with growth potential - are also very capital-intensive. T will have to spend a lot of money to generate sufficient content to compete with the likes of Netflix (NFLX), Amazon (AMZN), Disney (DIS), and Apple (AAPL) in streaming wars and fiber infrastructure is very expensive to build out and faces limited barriers to entry. As a result of these capital demands, one or both of these business ventures may eventually push T to slash its dividend.\nAlready, the company is signaling that its dividend is not as safe as some may think it is. On theirQ4 2020 earnings call, management announced the inevitable:\n\n We plan to use free cash flow after dividends for the next couple of years to pay down debt. We remain focused on monetizing noncore assets and using those funds for debt reduction as well. We’re committed to\n sustaining our dividend at current levels, and we’ll give top priority to debt reduction, at this time.\n\nWhile it is encouraging to hear them acknowledging their debt problem and announce initiatives to address it, the fact that they have to freeze their dividend at current levels despite being a proud Dividend Aristocrat is very telling.\nInvestor Takeaway\nWhile T'sfirst quarter resultsmay have cheered some investors with strong HBO Max performance and improved performance in its core wireless and broadband businesses, we see the bigger picture issues as unchanged. The debt remains far too high, their growth businesses remain outclassed by competition with far more financial flexibility than them, and their EV/EBITDA is hardly what we would call cheap. Last, but not least, the main reason for investing in T (its dividend) has been frozen indefinitely while the company focuses on deleveraging. Given the growth challenges they face, we believe this might take a long time to accomplish and, if interest rates rise meaningfully for a sustained period of time, management will likely be forced to slash the dividend.\nAll that said, T is not significantly overpriced and we are neutral on its risk-adjusted total returns moving forward. However, we simply do not find it attractive enough to add to our portfolio.","news_type":1},"isVote":1,"tweetType":1,"viewCount":1,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"hots":[{"id":104149081,"gmtCreate":1620367284843,"gmtModify":1704342661576,"author":{"id":"3574822591965562","authorId":"3574822591965562","name":"Mick_Khie","avatar":"https://static.tigerbbs.com/e8f8dcd67231e2861de700d3dae71934","crmLevel":1,"crmLevelSwitch":0,"followedFlag":false,"idStr":"3574822591965562","authorIdStr":"3574822591965562"},"themes":[],"htmlText":"Like ","listText":"Like ","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/104149081","repostId":"1176438696","repostType":4,"isVote":1,"tweetType":1,"viewCount":1,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"lives":[]}
