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CapEx exceeded Depreciation by $2.5 billion and was up $2 billion year-over-year.

High levels of CapEx anticipated in June's, "AT&T: A Junk Bond in Equity Clothing".

Maintain rating of "Avoid" for total return investors.

Many analysts have discussed AT&T's (NYSE:T) recent quarter. To sum up the highlights, T did OK, as it had record low churn, record total and wireless sales and the $0.68 second quarter EPS missed the forecast number by a penny. Primarily due to the earnings miss, T dropped four bits the trading day following the earnings release. What investors have not focused on in T's results is how hard the company is running to stay in the same place (actually backward as 2014 Q2 numbers were $0.03 below the prior year). T has spent $11.6 billion in CapEx this year, about $2 billion more than in the same period last year. The CapEx spend is also $2.5 billion over the period's Depreciation & Amortization, which basically says, 1) T is spending real cash today that (under GAAP), 2) is not showing up on the income statement, 3) in order to make negative year-over-year net income and EPS (or if you are a glass half full sort of investor, maintain EPS under a two quarter perspective).

(click to enlarge)

Source: T 8-K

Last month, I published "AT&T: A Junk Bond in Equity Clothing," a deliberately provocative title designed to make dividend investors consider the long-term risk to their juicy (5.2%) dividend. The article discussed the heavy CapEx T was likely to spend just to keep up with the competition. It is fair to say, what we are seeing in second quarter CapEx spend and mediocre results is consistent with the article's theme (and a foreshadowing of the future).

I took a look at T following the earnings release, and upon reflection, continue to believe T is not a good investment, relative to risk and investment alternatives, for total return investors. In the short term, the dividend is certainly safe. However, the value of the underlying security certainly may decline, if not from poor performance then from T's deteriorating relative attractiveness under a rising rate/inflation scenario.

This article only reflects the personal opinion of the author and is not meant to suggest an investor buy or sell T. Investors should always conduct their own due diligence and make investment decisions based on their personal analysis.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.