1 Reason To Avoid AT&T And Its 7% Dividend
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
This is huge part of things.
But another huge part of this that few think of is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you achieve your retirement goals.
In recent articles I’ve shown you several stocks to avoid investing in…
- 1 More Reason To Avoid Burlington Stores
- 2 Reasons To Avoid Home Depot
- 3 Reasons To Avoid Target
- 2 Reasons To Avoid Lowe’s
- 2 Reasons To Avoid GM
- 2 Reasons To Avoid Nike
- 2 Reasons To Avoid Starbucks
- 1 More Reason To Avoid GE
- 4 Reasons To Avoid Kohl’s
Today I want to show you another stock to avoid at all costs so you can continue growing your investment portfolio.
1 Reason To Avoid AT&T
It’s Got An Enormous Amount of Debt
Normally in these articles I talk about things like valuation, profitability, cash flow, the affects coronavirus is having on a company’s financials, among other things.
But frankly none of those matter with AT&T (T) due to its enormous debt load.
As of this writing AT&T is a $203.9 billion market cap telecommunications operator.
Its most recent quarterly data showed it has $16.9 billion in cash. While it has $191.2 billion in short term and long-term debt and capital leases.
In other words, its debt makes up 93.8% of its market cap.
And its debt load is 10.3X higher than its cash levels.
I want to invest in safe stocks that will be around for decades to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity.
And I look to invest in companies with a debt to equity ratio below 1…
AT&T’s debt to equity ratio is at this number which means its fine right? No.
When looking at AT&T’s financial statements you see that it has $299.3 billion in “intangibles and goodwill” on its balance sheet.
Intangibles are things like patents, licenses, trademarks. These are valuable assets in AT&T’s case because they keep competitors away.
Especially the AT&T brand name which as of August 14th, 2020 is the 11th most valuable brand in the world at worth $105.8 billion.
What about goodwill? Is that valuable in a real-world sense?
Not so much.
Goodwill is mostly an accounting figure – meaning most of the time it has no real-world value.
This is because goodwill is the excess amount a company pays to buy another company above its book value.
For example, if AT&T bought a company for $2 billion but its book value was $1 billion. AT&T would record $1 billion in book value on its balance sheet as an asset.
Because this number has almost zero real world value, I discount – cut – 100% of this number from most stock evaluations I do.
And I’d do that here in AT&T’s case.
After removing the $143.5 billion in goodwill from its balance sheet, this leaves AT&T with $50 billion left over in book value.
Which decreases the debt to equity ratio to around 0 from the 1 you see on Morningstar.com.
While also increasing the total liabilities as a percentage of its balance sheet up to around 90% from 66.8% on Morningstar.com.
These are the more real-world debt numbers for AT&T.
And they show that investing in AT&T stock is enormously risky right now due to its huge debt levels.
They also show why AT&T is barely able to cover the interest payments on its debt with its interest coverage ratio of 3.05.
Anything above 1 shows the company can cover the interest payments on its debt with current profits and cash flows… But you want this number higher to bring true safety to an investment.
This enormous and growing debt makes AT&T stock enormously risky in these uncertain times.
For this reason, I recommend you avoid investing in AT&T and its 7% dividend.
Click the links below to see the stocks we recommend helping Depression Proof Your Portfolio.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.