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AT&T's Capital Structure Signals No Problem At All For The Common Stock

Jun. 02, 2023 12:03 PM ETAT&T Inc. (T), T.PR.AT.PR.C, ALL.PR.J59 Comments


  • Heavy pressure on the AT&T Inc. common stock and zero pressure on the debt and preferred stock.
  • Significant credit spread narrowing that is absolutely surprising.
  • The AT&T Inc. preferred stock yield is comparable to fed funds rate.
  • Long the AT&T Inc. common stock or short the preferred stock is the question.
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We usually post our articles to members of our service 1 week before we publish them to the public. This article was first published on May 29, 2023.

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This article was written by

Arbitrage Trader profile picture

Arbitrage Trader, aka Denislav Iliev has been day trading for 15+ years and leads a team of 40 analysts. They identify mispriced investments in fixed-income and closed-end funds based on simple-to-understand financial logic.

Denislav leads the investing group Trade With Beta, features of the service include: frequent picks for mispriced preferred stocks and baby bonds, weekly reviews of 1200+ equities, IPO previews, hedging strategies, an actively managed portfolio, and chat for discussion. Learn more.

Analyst’s Disclosure: I/we have a beneficial short position in the shares of T.PA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am short T-C and have a small long position in T

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (59)

90_percent_invested profile picture
How wrong can you be ?
Arbitrage Trader profile picture
Can you please explain?
This is one of the biggest trades posted on SA recently. T-A and T-C fell sharply.
This was my disclosure for the article :

I am short T-C and have a small long position in T.

The article title probably makes you think I am one of these T bulls and this is not the case at all :)
When comparing T's price to what it was 3 years ago, shouldn't price be adjusted for the spin-off off WBD?
sourdo profile picture
I thought $15 was a good entry point for T common, put in a 1000 share buy order that took a bit of days to fill, but fill it did with the Amazon cell phone story, and it fell into my hands.

Lets face it, going long long on T is, well, I won't. But I will trade T, it's the only way to make money here. Buying high and selling low is a poor investment strategy, but the DIY investors do that over and over with T.

I never buy a stock without some idea at where I would sell, so for T, anything north of $3 gain is good for me. $20 would be nice.

Wait and see, good investing to all. I am certainly not worried about AT&T, it'll be around for quite a while.
Davsha profile picture
@sourdo "I never buy a stock without some idea at where I would sell, so for T, anything north of $3 gain is good for me. $20 would be nice."
What's your plan, if the stk you just bought, continues moving against you?
Many who had planned a short term trade, will become "long term
investors" when faced with a loss.
sourdo profile picture
@Davsha When T dropped towards $15, I sold it at $15.16 and a dividend.

THAT is what you do when a trade goes south.

Then I bought them back for $13.60, near the bottom.

If I liked T at $15, I absolutely love it at $13.60!
Davsha profile picture
@sourdo "When T dropped towards $15, I sold it at $15.16 and a dividend."

Bc many have a plan of selling IF it rallies to___ but
have have no plan for the reverse.
I did similarly. Rebought recently just under 15 but sold just above 16. (Stk had a brick wall of sellers there,day after day. I still have
bitter memories of market rallies & me being stuck in some POS that fails to participate).
And yes, I like & did bite in the 13s (tight stop-loss as always).
Thanks for taking the time to reply.
I, Investor profile picture
Holding T. Have not been adding for some time. Eventually, T will bounce back to at least mid-20s. In the interim, I’ll collect my 7% yield.
Don't trust anything Amazon says about buying bandwidth from any of the telcos.

Amazon has increased the annual fee for Prime to $139 now, and I just ordered something that will take 4 days to deliver as a Prime product. What happened to the 2 day guaranteed delivery under Prime?

Any further increase in Prime membership will make it not worth the money, especially with 4 day deliveries.
sourdo profile picture
@PaulM_2 I ordered some wire the other day, Prime says same day delivery, I said; "no way".

Later that evening, "Way...."
@PaulM_2 We now get updates just before close of day (which is ten) saying “Tomorrow is your new day” but they haven’t pushed it out excessively so we hope for 2 day service now having adjusted our expectations.
Davsha profile picture
"Long the AT&T Inc. common stock or short the preferred stock is the question."
Up until Fri., the existing trend continued. T.PRC held up while T common
continued it's slide.
"We usually post our articles to members of our service 1 week before we publish them to the public. This article was first published on May 29, 2023."
At least in this case, it was no advantage to be private member,lol.
Arbitrage Trader profile picture
Not the best marketing for sure. My service is small and members of the service are quite professional. There is no guru momentum in the service at all.
Davsha profile picture
@Arbitrage Trader Thanks for taking my snide comment with grace & humor.
Why? Why in the world would anyone buy T stock or bonds?

The company is a disaster and has been for decades.
Arbitrage Trader profile picture
@Harry Sack
Well the preferred stock seems quite overvalued. Hard to believe the current risk premium it gets from the market
@Arbitrage Trader Appreciate your work. What’s your opinion of LBRDP ? The company and the structure they set up? Is it safe to own long term?
Arbitrage Trader profile picture
Haven't done any research on this one recently. No opinion.
T common had to fall, the safe yield on treasuries is 5+%. To get me interested I need at least 7% for T. Plus, treasuries are state and local tax free.
Arbitrage Trader profile picture
I agree in general, but you need to adjust for the duration. There is no high-duration treasury at 5%. With common stock, it is the earnings yield that matters rather than the dividend yield.
As for the preferred stock, they did narrow credit spreads which is just insane and they are only dividends in contrary to the common stock.
josephaoppenheim profile picture
Unfortunately, the stock says there’s plenty of problems.
Murad Shawar profile picture
@josephaoppenheim How so there keeping there promise of paying down debt infact I think if T/VZ cut there dividend in half from here and used the proceeds for the next decade to pay down debt and grow FCF alot of people would be for it .
Well Stankey how is that spin off working? Time to pack your bags, you've screwed the shareholders long enough.
@ronjon1957 Please send direct mail! Short, simple and to the point one sentence letter. I will follow with thousands of words describing our tale of woe. I can even explain my children know pb&j so well because we get taxed on dividends but lose tons and tons and tons.
Ol' Hickory profile picture
I would be concerned about a dividend cut on T.

Note that according to published reports, Amazon talked to VZ and TMUS about buying bandwidth, but not T.
@Ol’ Hickory All 3 companies deny any talks taking place. Amazon included. Amazon said that there are no plans or talks. All 3, plus T saying that there are no talks about prime mobile service doesn't mean that they haven't happened yet.
@Ol’ Hickory I read that article
too. First that onky TMUS was sought out and a deal
in the works. Then I read much later in the day that VZ and TMUS were in talks but NOT T and later that VZ and TMUS denied being in talks and T had no comment. That last one was a direct quote though I am not sure where I read it.
spend my cash profile picture
just added the new ALL pfd. cool
Arbitrage Trader profile picture
@spend my cash It was way better on the grey market but still decent here.
spend my cash profile picture
@Arbitrage Trader ...if rates decline in the next several years and credit spreads don't blow out, I do just fine.
If I am to understand the message of the article correctly, it is that the current valuation of the AT&T preferreds is based on delusion. Of course we have known for years that many or most of the pension funds and institutions holding tens of billions in AT&T debt were also delusional about the level of risk they were ignoring. As for the common, just a quick glance at the comments following after any T stock analysis (on SA or elsewhere) reveals a surprising broad range of delusions among stock investors. Perhaps the important underlying fact is that different AT&T securities holders have different delusions, probably leading to mispricing of all of them. Just pick your own delusion, then match it with the bonds, the preferred or the common stock, and invest accordingly.
Arbitrage Trader profile picture
the crypto, TSLA hype brought a lot of delusions into the markets IMO. T falling 50 % and T-A Current yield is comparable to fed funds :)
Marieee profile picture
@Arbitrage Trader long time holder lost 50% of my money I finally sold I can’t take the pain…
@Marieee !!!!! You did! I know I tild you I almost did at $20 and then kind of froze. What to buy now though? I put my dividends into QQQ.
billrla profile picture
T will turn around when interest rates ease. No idea when that might be.
Oil Can profile picture

Agree. I’ve been buying both $T and $VZ at these levels figuring it’ll be sooner than later because the USA can’t afford interest payments at 5-6%. I’d make a comment about $T management but I’m trying to work on my attitude today…
Marieee profile picture
Marieee profile picture
@Oil Can omg So true
If I performed and generated the non performance numbers as T's senior mgt I'd been fired several times over - call T's board "bought."
Huge debt load in a rising rate world. A formerly blue chip company badly mismanaged for way too long. It has been occasionally tradable for 20% gains for the nimble. Thru it’s many misadventures it has been one of the mother lode fee payers for bad advice from Wall Street investment bankers. $$$. Limo rides. Fancy dining. Theater and sports tickets, Nice houses in the ‘burbs. Kids to private schools!! Poof!
Arbitrage Trader profile picture
Fixed-rate debt is a pretty decent move in a rising rate world
@Arbitrage Trader Actually no debt is. It wouldn’t be surprising if the dividend is cut again.
The Fed is on their rate hike mission and will most likely screw up the economy so bad before they decide to reverse course. They were late at raising rates now they will be late to cut them.
Arbitrage Trader profile picture
@notre I am not sure I understand the economy as good as FED does. Do you think you can do a better job than the FED?
Buffet-like???? wow

Poor management/board----massive debt that will weigh on the common for a decade-----they are not 1 or 2 in almost every category they serve-----

Ruined brand by awful corp decisions/board
Arbitrage Trader profile picture
The business is Buffet-like while the common stock is not. It reminds me of the way he used to describe how happy he is, knowing how many people drink Coke.
Management and board are replaceable if one likes the core.
@Arbitrage Trader Replace the management and board!
Holding my T, collecting the dividends and praying. I have no plans to add.
@Dr. LouX yes, and using the dividends to rebalance to more sane investments.
@Dr. LouX I am
with you. In hindsight oh how the years of hope and prayer could have been better spent.
@Minka the Cat That is what I did Minka- after reinvesting for years and losing all that dividend income. Four years ago I decided T should stand for Tech too. I hope T gets the satellite stuff right and doesn’t blow that.
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