Is AT&T And Its 7.6% Dividend A Buy After Earnings?
Last month I showed you 1 Reason To Avoid AT&T to keep your investment portfolio safe…
Today, I want to answer the question – Should You Keep Avoiding AT&T’s 7.6% Dividend after it reported its latest quarterly earnings?
Here’s a brief recap of what I said then about avoiding the stock. If you want to read the earlier AT&T article in full use the link above.
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.
This thesis to avoid AT&T continued playing out on October 22nd, 2020 when it released its most up to date quarterly earnings.
- Revenues fell 5.2% in the year to year quarterly period to $42.3 billion.
- Earnings per share fell 22% in the year to year quarterly period to $0.39 per share.
- And operating income fell 17.1% in the year to year quarterly period to $8.2 billion.
The coronavirus had a huge negative affect on AT&T’s business so far. And with new cases now exploding in the United States and Europe there no relief in sight.
On top of this it still has $159 billion in debt compared to $10 billion in cash.
As I said in the last article… Lower revenues and profits with huge debt levels is a horrible combination that makes owning AT&T stock incredibly risky.
Nothing I saw in the most up to date quarterly report changes this.
Because this is continuing – combined with everything talked about in the original article – continue avoiding AT&T stock and its now 7.6% dividend.
Click the links below to see the stocks we recommend to Depression Proof Your Portfolio and earn safe investment returns.
- 3 Stocks That Will Earn You High Returns In The Coming Depression.
- One Thing To Do Today To Protect Your Investments
- 5 Reasons To Buy British American Tobacco
- 3 Stocks To Depression Proof Your Portfolio – Stock #1
- 3 Stocks To Depression Proof Your Portfolio – Stock #2
- 3 Stocks To Depression Proof Your Portfolio – Stock #3
- 4 Reasons To Buy Cummins To Depression Proof Your Portfolio
- 5 Reasons To Buy JM Smucker
- 5 Reasons To Buy General Mills
- 5 Reasons To Buy IBM
- 5 Reasons To Buy Johnson & Johnson
- 2 More Reasons To Buy J.M. Smucker
- 4 Reasons To Buy Microsoft – And 1 Not To
- 5 Reasons To Buy Sony
- 3 Reasons To Buy Wheaton Precious Metals
- 1 More Reason To Buy General Mills
- 1 More Reason To Buy Johnson & Johnson
- Is IBM A Buy Before Its Spin Off?
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.