Why Buy a Yield Trap With AT&T?

According to analysts, AT&T (NYSE:T) stock should more than cover its dividend when the company next reports earnings Oct. 26. But in a world where the 30-year government bond yields 1.4%, AT&T stock is down 6.3% from its last earnings report on July 23. This despite a yield that now totals 7.16% per year. That’s higher than Chevron (NYSE:CVX). What’s wrong?

The Debt. What’s wrong is the balance sheet, which showed over $175 billion of debt at the end of June. That’s a debt to equity ratio of .96. Forget the company’s market cap of $207 billion. Its “enterprise value,” the debt and equity combined, is almost $400 billion.
There are reasons to buy AT&T, based largely on new CEO John Stankey undoing much of what Stephenson did. You buy AT&T today for the dividend, and you wait for the reorganization. The present company doesn’t work, but its pieces will work for someone.
Source: InvestorPlace

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