Recent Buy – AT&T, T, $T

Happy Wednesday!

Half a week has gone by and I’m still as busy as ever. I’ve been trying to walk/jog a little more at the undeveloped park near my house. As some of you might have known that I’m into foraging. There is nothing more satisfying finding the best food in the wild. This is mushroom hunting season. Yesterday, we found some “Chicken of the wood”, you can read about it on wiki.

Well, aside from that, I’ve been buying stocks like a busy bee. Especially media company likes VZ. LOL 🙂

I’ve own AT&T before at $33, then $30, sold for a handsome profit to fund a buy. Then the stock ran up around $4X.Xx. Now, that I have some money, and T is yielding at 5.13%. I figured, why not?

• I found an article that Bronte Capital is selling all the media company here. If you want to read about their contra-view.
• Dividend Dreamer owns like 3518 shares, and he’s not selling.

Since we’re talking about 2 separate views. I’ll summarize this post with three reasons to sell AT&T, and three reasons to hold or buy AT&T. Let’s start with the three reason to sell AT&T:

1. AT&T and TWX Merger can pose complications: Remember the merger of TWX and AOL back in 2000? The result was a whopping $99 billion writeoff within about two years. Yikes!
2. Debt: It’s currently at about $120 billion. But with the TWX merger, it will likely reach a nose-bleed $170 billion. This would come to about 68% of the market cap. What Moody, the credit rating company says about this?

AT&T’s funded debt balance could exceed $170 billion following the transaction close and average annual maturities will be greater than $9 billion starting in 2021…This may cause AT&T’s cost of debt to rise, especially in times of market stress. Rising benchmark rates, combined with wider credit spreads would put pressure on AT&T’s free cash flow

3. Competition: The biggest threat to Verizon and AT&T is T-mobile fast growing subscribers.

Q1 Post-paid phone net adds $TMUS +798k $S +42k$VZ -289k $T -348k

— Wellroundedinvestor (@mindfulinvest) May 10, 2020

The competition remind me of CVS, Walgreen and Rite-Aid, in the end, CVS buying more store from Target, Walgreen got bought out by Boots (to save on taxes), and Rite-Aid is just dying hanging in there, but will die soon, or getting bought out by Walgreen if they close down more stores. That’s what my story for $TMUS if they are not diversifying themselves in some way.

Three reasons to Hold or Buy AT&T $T:

1. Savvy at Leveraging Game: AT&T jump on to the leverage game when the interest rate is still quite low.  Over the years, AT&T has been savvy with M&A and partnerships to expand its business into new growth areas. Perhaps the most notable example of this is the $50 billion acquisition of DirecTV. The deal has not only resulted in a nice jump in the paid subscriber base but is making it possible to get a much bigger piece of the video opportunity.
2. Financials & Dividend: AT&T has been fairly consistent at paying dividend.
   

   Trailing P/E	18.65
   Forward P/E 1	12.91

Gross Profit (ttm)	86.9B
EBITDA	48.95B
Net Income Avi to Common (ttm)	12.64B

All this should provide comfort with the sustainability of the AT&T dividend. In fact, the company has increased its dividend for 33 consecutive years. As for the latest move, it came last quarter, which involved a 2.1% increase.

      3. A Communications Powerhouse:

• 79.4 million business wireless subscribers
• 53.9 million consumer wireless subscribers
• 25.3 million video subscribers

Take home points:  AT&T, T, $T has never been a “scream” buy, because the stock is a SLOW growing stock. But the dividend is consistent. I don’t expect many more cellphone subscriber leaving AT&T for T-mobile as the market has neutralized. I don’t expect AT&T will have any more of big acquisitions. But one thing for sure, there is no good solution to rural America, the demand for AT&T services are still there. And that It’s probably okay to hold on to AT&T if you’re owning shares, and it’s probably okay if you lose faith and start buying Apple instead. But for me, it’s worth a risk of plunging $37X.xx or $37.xx/share for 10 shares of AT&T that would give me $19.60/year in dividend.

One way for me to look at entering $T at this point is if it goes to $35, then I’m breaking even with the dividend payout. If it goes $33, then I’d buy some more to average down. Therefore, the risk is okay to manage at this point buying $T in my opinion.

What do you think about my AT&T buy, or my recent Verizon Buy?

Full disclosure: I’m long $VZ and $T