{"id":4388,"date":"2014-12-10T16:54:49","date_gmt":"2014-12-10T16:54:49","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=4388"},"modified":"2014-12-10T16:54:49","modified_gmt":"2014-12-10T16:54:49","slug":"12-10-14-is-att-t-now-a-bond-substitute","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=4388","title":{"rendered":"12.10.14: Is AT&T (T) Now a Bond Substitute ?"},"content":{"rendered":"
\"Click<\/a>
Click to enlarge<\/figcaption><\/figure>\n

AT&T (T), fell 3%\u00a0yesterday on nearly 3(x) average volume, after Verizon (VZ) warned about increased churn and\u00a0margin pressure\u00a0in its wireless business, which promptly dropped VZ 4% on Tuesday on nearly 3.5(x) average volume.<\/p>\n

A small position in VZ was sold on Tuesday (we’ll give it until the January ’15 earnings report to have another look at the fundamentals and guidance) but I also added some T for clients in both bond accounts and balanced accounts, given the current yield on T of 5.5%.<\/p>\n

The hook was that when I look at the current yield on HYG, the iShares High Yield (junk bond) ETF, which is yielding 5.75% presently, the trade-off between an investment-grade credit dividend at 5.5%\u00a0versus high-yield current income at 5.75% with energy exposure seems compelling.<\/p>\n

Frankly, I’d rather own Telco\u00a0dividend risk here, with T sporting an A3\/A- credit rating from Moody’s and S&P (Moody’s has T on creditwatch negative) than below-investment grade credit risk, with the liquidity issues in the high yield bond market to boot.<\/p>\n

If you look at T’s chart above, the stock is testing its uptrend line off the March, 2009 lows. The early 2014 lows for T was $31.74.<\/p>\n

We would likely be out of the stock with a trade below $30 on heavy volume, or at the very least reconsidering the long position depending on what else is happening in the US stock market.<\/p>\n

In terms of disclosure, I have long been an AT&T client, with home and work landlines, as well as T being my cell phone carrier as well as website host. However the price war started by T-Mobile and Sprint makes for a compelling value and pushes against T’s and VZ’s most profitable and growing business, i.e. the wireless biz.<\/p>\n

Verizon took on a lot of debt with the Vodafone acquisition, resulting in VZ currently being rated Baa1\/BBB+.<\/p>\n

According to my internal spreadsheet(s), VZ sports $107 billion in long-term debt as of 9\/30\/14, while AT&T’s total long-term debt is $70 billion. T’s debt-to-capital is 28% while VZ’s is nearly 48%.<\/p>\n

I would like for VZ to trade into the low $40’s before buying it back as a bond-proxy for clients.<\/p>\n

This AT&T trade may be good for a\u00a0 week, a month or 6 months. Right now I’d prefer to collect a 5.5% Telco dividend than a 5.75% high-yield ETF dividend.<\/p>\n

Trinity Asset Management, Inc. by:<\/p>\n

Brian Gilmartin, CFA<\/p>\n

Portfolio manager<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

AT&T (T), fell 3%\u00a0yesterday on nearly 3(x) average volume, after Verizon (VZ) warned about increased churn and\u00a0margin pressure\u00a0in its wireless…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[136,40,64],"tags":[],"class_list":["post-4388","post","type-post","status-publish","format-standard","hentry","category-att-t","category-hyg","category-vz"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/4388","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4388"}],"version-history":[{"count":6,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/4388\/revisions"}],"predecessor-version":[{"id":4395,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/4388\/revisions\/4395"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4388"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4388"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4388"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}