Marty Fridson Calls on AT&T for Preferred Income

07/13/2020 5:00 am EST


Martin Fridson, CFA

Publisher, Income Securities Investor

Marty Fridson, editor of Forbes/Fridson Income Securities Investor, will be conducting a live webinar on "Managing Risk in an Income Portfolio" on Thursday, July 16th. Here's a look at his recent review of a recommend preferred play on AT&T (T).

Sign up for Marty's webinar here.

In our portfolio of preferred stocks, we recommend AT&T Inc.; 5.00% Fixed Rate, Cumulative Perpetual (T-A) which trades on the NYSE and has a par value of $25.00. The annual cash dividend is $1.25

At the current price of $25.36, the preferred has a current annualized yield of 4.93% with a call date of 12/12/24 and a yield to call of 4.64%. The preferred has a S&P rating of BB+.

AT&T is a global leader in telecommunications, technology, media, and entertainment. The company conducts its business in four operating segments.

Premium content is offered through its WarnerMedia HBO, Turner, and Warner Brothers divisions. AT&T Communications provides U.S. consumers with entertainment and communications, as well as high-speed connectivity.

AT&T International is a provider of pay TV in Latin America and the Caribbean. AT&T Ad & Analytics provides marketers with creative, targeted, and data-driven advertising solutions.

The company reported 1Q 2020 net income of $4.58 billion or $0.63 per share. Adjusted for special items, however, AT&T reported $0.89 per share, topping analysts’ $0.85 estimates.

Bottom line adjusted results were relatively flat from a year earlier, while quarterly revenues missed their mark. Revenues were challenged by the COVID-19 pandemic, as advertising sales fell sharply, hit by the postponement of live sports events such as March Madness.

In addition, AT&T strengthened its position as a content provider with its acquisition of Time Warner in June 2018.

Actions that management took in 2019 to help reduce leverage included the sale of the company’s 9.5% stake in Hulu for $1.43 billion, which the rating agencies viewed as a positive credit event.

This preferred is cumulative, with qualified dividends taxed at the 15%-20% rate. It is suitable for medium-risk taxable portfolios. Buy up to $26.25 for a 4.75% current yield and a 3.80% yield to call.

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