Why I’m Staying Away From AT&T (And Other Stocks Like It…)

“My only long-term argument against it… is the stock simply sucks.”

That was my reply to my colleague Brad Briggs when he asked me to provide a long-term argument against telecom giant Verizon Communications (NYSE: VZ) last November.

A very well-thought answer, right?

The stock was trading ridiculously cheap at the time and sported a mouth-watering dividend yield. If you check now, the stock is even lower, and the yield is even higher (a stock’s price and dividend yield share an inverse relationship).

My supporting evidence was this snapshot of Verizon’s five-year performance (if it’s hard to read, the stock’s five-year average is -0.3%):

I followed up with, “Long-term investors have got to be disappointed in the stock; the thing can’t even make a halfway decent return during the greatest bull market of our lifetime. Over the last 10 years, it’s returned 40%… pathetic.”

I was reminded of this conversation this week when I saw this headline in the Wall Street Journal:

Numerous Twitter polls asked people if they were buying shares of AT&T (NYSE: T) at these levels. Especially since the stock now yields a whopping 8.2%.

Many dividend devotees salivate at such yields. And they’ll even scoop up shares of a crappy company just to tout its dividend yield. But I’m here to tell you (again) that that is a terrible way to invest.

When To Worry About The Dividend…

I’ve been a spoiler to many common investing “strategies.” Like when I said way back in August 2017 that “Buy-and-hold investing is a fallacy.”

Then in September 2020, I warned of the perils of chasing lofty yields. I specifically pointed out that investors should avoid Brookfield Property Partners (Nasdaq: BPY) and its subsidiary Brookfield Property REIT (Nasdaq: BPYU). At the time, BPY was offering investors an eye-popping 12.3% dividend yield. You have to recall this was when interest rates were still zero, and money market accounts weren’t offering the 3%-5% rates like they are today.

My case against these two high-flying dividend payers was their bloated balance sheets and poor-performing real estate holdings (concentrated in malls — remember those?).

Sure enough, BPY couldn’t pay some of its debt, and just four months later (January 2021), Brookfield Asset Management decided to take BPY private. They offered shareholders $16.50 per share, which is almost 22% less than its IPO price of $21 per share.

When The Red Flag Gets Raised…

The moral of the story is that it’s enticing to buy a big company like AT&T since it sports an 8.2% dividend yield. But it’s typically not profitable.

When companies are saddled with debt (like AT&T is), they assure you everything is okay. Especially the dividend. But the truth is… they’re lying. The dividend is in jeopardy.

Management has reiterated (many times) that AT&T’s dividend is “among the highest dividend yield payers among the Fortune 500.”

To some investors that might sound reassuring. To me, it sounds alarming. Only because I’ve been burnt by such comments before.

Longtime readers might remember our investment in Macquarie Infrastructure. The stock merged with Argo Infrastructure and is no longer listed. The CEO of Macquarie told shareholders point-blank that they had no plan of cutting its dividend… One month later, they slashed the dividend, and shares fell 41% in one day.

So consider this a warning… be wary of a stock when its shares have plummeted, and its dividend yield has climbed. You might think you’re getting a good deal, but no dividend is big enough to offset a major collapse in shares.

AT&T reports earnings on July 26. It’ll be a telling earnings report. The battered shares could jump if there’s a hint of good news. On the other hand, if there’s even a whiff of bad news, investors will be scrambling for the exit.

Where To Find Great Dividend Stocks

Okay, I realize I’ve railed on dividend stocks. But I don’t dislike them. The good ones are some of the best investments you can make.

So, I want to share with you one of my favorite lists to find wonderful dividend-paying companies. No, it’s not the vaunted Dividend Aristocrats list, although that list is fine too. It’s just too exclusive.

Instead, I like to peruse the Dividend Champions list.

Like Dividend Aristocrats, Dividend Champions have consistently increased their dividend payouts for 25 consecutive years. The biggest difference is that Dividend Aristocrats must be members of the S&P 500. Dividend Champions do not.

Being a member of the Dividend Aristocrats list is nice and all, but it doesn’t provide investors with the whole picture of great dividend-growing companies. By focusing only on the Dividend Aristocrats list, you miss out on a slew of other great investment opportunities.

In short, I believe the Dividend Champions list is even better than Dividend Aristocrats.

In addition to the Champions list, there is the Contenders list, which are companies that have increased their dividend for the past 10 years, and the Challengers list, which have increased dividends for the past five years.

You can find these lists here. Before you go any further, just remember to not get attached to any one company… even if it has a compelling dividend yield. It’s okay to sell your dividend stocks if they aren’t performing as expected.

Too many income-minded investors get caught up with their dividend stocks. They continue to throw good after bad (continuing to buy more shares as the stock plummets). Pretty soon, it’s been 31 years later, and the stock price is the exact same… just like AT&T’s.

P.S. How would you like to get paid every month from your portfolio? It’s easier than you think…

My colleague Nathan Slaughter makes it his business to research the best income payers the market has to offer. And he’s finding dozens of high-yielding monthly dividend payers out there that most investors don’t even know exist…

In his latest report, Nathan reveals 12 of his favorite monthly dividend payers offering market-crushing yields. Go here now to learn more…