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AT&T Offers an Attractive Alternative to Low CD Rates
By EconMatters
With the Fed promising to keep rates low for an extended amount of time, at least for the next two years based upon their latest analysis of the economy, interest rates on CDs is a negative return when you factor in inflation. For example, Chase offers a 6 month CD for an annual percentage yield of 0.20%, a 12 month CD that pays 0.25%, and a two year CD for 0.40% in the southwest part of the country, rates may differ slightly by region of the country.
An investor can find higher paying CDs with institutions that are courting capital but not by much, and beware of any CD`s yielding far above market rates as this is a giant red flag, and not worth the risk.
Keeping Up With The Cost of Inflation
So bottom line this is a bad time to be investing in CDs based strictly on yield. But it gets worse when you factor in the cost of inflation which is running about an annual rate of 3% when you factor in food and energy, and will probably run in the range of 2.5% to 4% at an annual rate over the next two years depending upon fed policy.
So if we take the one year time frame and assume a 3% inflation rate, the CD investor is realizing a negative return of 2.75% on their money. This is not a good scenario for those investors who need a certain fixed return to live on to meet their annual budgetary requirements. So let us explore a way to improve the income generation for these types of investors.
Emergency Base Capital Only in CDs
Now I must mention right here that it is different if the investor is highly likely to need this base capital for some reason during the investing timeframe, this might be the only reason to stay in the CD, but remember penalties may apply to withdrawals made prior to maturity. An alternative is to move a portion of your base capital out of CDs into safe higher yielders, while keeping only the potential emergency capital locked in the safety of CDs.
I am going to recommend a pretty safe high yielding stock that has had a steady stock price over the last couple of years, and provide a conservative entry point, all of which should help the yield investor preserve their base capital.
My Favorite Candidate Is AT&T
The favorite candidate is AT&T, Inc. (T), a really solid company in the telecommunications industry, and a Dow 30 Blue Chip stock, and after being overpriced in 2007, has had a relatively stable price pattern over the last 3 years, maintaining its value and offering investors a plus 5% yield, which certainly keeps your capital ahead of inflation concerns, and today offers an outstanding annual yield of 5.9% which blows the socks off your CD alternatives.
An ideal entry point would be around $25 a share, which the extremely patient investor had about 5 legitimate opportunities over the last two years to pick up this solid company. However, because time might be an issue it is reasonable to assume that a merely patient investor can pick up T at $27 a share sometime in the foreseeable future, just be patient and wait for a market selloff or large investor reallocating capital and you should find your preferred entry point.
Preservation of Capital
At $27 a share your principal base should be safe, given flexibility in your exit point, and you gain a highly attractive 5.9% annual yield on your principal. You will not be alone as many investors like AT&T for this very reason; this is why it holds up better than most stocks in tumultuous market conditions. AT&T currently trades around $29 a share but was as low as $27.70 on August 8th, so just monitor the stock, wait for an overextended selloff, and swoop in and get your preferred price around $27 a share.
Market Overreaction = Buying Opportunity
And if you’re really lucky you might get some negative news where investors overreact and you can pick up this enduring company around $25 a share similarly to how Apple (AAPL) provides excellent buying opportunities regarding over reactions to Steve Jobs retirement news. Just make sure the news isn`t game changing in nature for the company like Congress passes some punitive legislation that negates 30% of the firm`s profits over the next five years.
But other than that when you factor in the attractive yield, every significant pullback in AT&T has been a nice buying opportunity for the conservative investor who seeks a safe return of their capital, and wants to stay ahead of the inflation curve. It sure beats the heck out of Treasuries or CD yields right now, and this appears to be the case for the next couple of years.
Federal Reserve Hedge
The economic downturn and decision by the Fed to maintain an exceedingly low interest rate policy has really put a crimp in CD returns, and for those relying on a fixed income this can be highly problematic, but there are options to protect oneself from these negative realities, and I believe moving at least a portion of your CD base capital into a solid company like AT&T with nearly a 6% yield makes for an ideal hedge against the Federal Reserve and current monetary policy.
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Notes: Markets no longer exist, only manipulations. Anyone who holds paper assets at this point in history is utterly clueless or reckless, unless you are a very alert, very savvy day trader. Anyone who trusts any corporation to hold or protect more than a tiny percentage of their assets, is just plain nuts. At this point in history, all advice of this kind is completely misguided.
Get real. Otherwise, you'll be toast like the rest of humanity.
Nice advice, asshole. I would've lost 4% today.
How much does AT&T pay you to write this? Tyler, please do something about the shameless spam.
Interesting exchanges....
Some people rely on cash flow to pay bills, PM's are wonderful but there is no cash flow. I manage wealth for people on the side, small time (mid 7 figures), mainly to keep me in greens' fees.
You could make a case for T to part of a diversified holding of divvy stocks. I don't like it though. I prefer hard asset plays that generate cash for the holder, that is why I lean to oil and gas royalty trusts and energy infrastructure MLPs.
PM exposure is through CEF. In tax exempt accounts, covered call strategies on SLV, GLD, GDX, GDXJ.
The same applies in the AG sector, covered calls on POT and DBA. Other equities of interest are the convertable preferred such as CHKPRD, MCPPRA and EPPRC Add in a smattering in things like UIL, RAI and MO and you get nice balance with a pretty good stream of cash. Almost forgot, look at HLPRB, convertable preferred in the silver sector...
Mix in a few high beta plays like KOG, LNG and some junior PM miners and you are in good shape...
Someone mention FAX, yep, not a bad play. I'll take TNH though instead.
Edit: MLPs that I recommend include TCLP, ETE, ETP, LINN, PSE, MWE, TOO, BWP (a dog of late), EVEP. All execellent holdings in taxable account because of the deferred tax structure...
Hahahahaha. No cash flow? Hahahahaha.
Today, "cash flow" == "cash outflow".
Get real, or get ready to be trashed.
In gold and silver we trust.
For shits and giggles....
Do you have 25 oz physical Au and 500 oz physical Ag? $400 face value in Ag coins? 9000 shares CEF? 7000 shares of PBT? 3000 shares HGT? 1000 shares ETE? 2000 shares SLW?
Go away and play with your tube of Silver Eagles unlesss you can add anything contructive....
I'm not sure what is your point. But the straight answer (in case you have a legitimate point) is that 95% to 100% of my liquid assets are gold and silver. However, in my case, I'm heavily skewed towards gold, even while believing silver has better intermediate timeframe potential. I have a few pounds of gold and several pounds of silver buried far out in the boonies where nobody but me will ever find them, accidentally or otherwise. I did have quite a bit of CGR and SLW that I grabbed in 2008 (if I remember correctly) when CGR was below $0.20 and I just couldn't resist. After it shot past $2.25 several months ago and I did an analysis of the recent performance of PM stocks versus physical, I decided to dump all paper and get 100% physical. I'm very glad I did, and no matter what returns any form of paper returns in the future, I'm gonna stay away from it, because it is too easy for the predators-that-be to steal it. I mean what I say, practice what I preach, and add far more insight than well over 99% of the people on this planet. Do you?
My point was not all assets can be held as physical; it was also was a rather flippant resonse to a measured post. I like PMs as much as anyone, but the Hedge needs to more than just "Silver, Bitchez!" all day and all the time...
There are number of juniors that have outpaced bullion, AVR.TO, IPT.TO etc...
Trade paper and turn the profits into physical.... that's my creed. BTW, with CEF, hold the certificates.
i just bought some T at $28 recently, a nice dividend, most people that have a pot to piss in have some money in telecomms, i own vz and vod and frontier and centurylink too, and i mostly buy when the shit is hitting the fan so spare me the drivel
Sprint is better for returns
i get better rates by just having my money in "not USD"... up 7% on the year before taking into account that i actually invest over here as well. it's an easy 20% with zero effort if you denominate in USD.
This is probably one of the most moronic recommendations I have ever seen. From my personal experience I always loose money whenever I invest in telecom ( and in 2008 I lost it big way with "solid" high yielding BT). But what is especially idiotic about this article is that the author suggests that the only available cash is US Dollar. My serious saver account with HSBC Australia yields 5.25 interest with very few restrictions (it is even not term deposit). Not to mention solid AU appreciation. And if someone does not like the idea of offshore bank account, how about putting it in FAX. It is not as good as Australian cash but surely better than ATT...
GLD's Yld is over 10% per annum. SLV is much higher.
Goo dluck with stocks there fellow.
The Silver comparison is invalid, Silver is $41ish, you would be buying Silver today not when it was $15 an ounce. The author said to buy T when is hit 25 ideally, your yield is much better, and your capital is pretty safe if you get T at 25, the comparison is between T and a CD, and has nothing to do with silver and a cd, silver was never even mentioned in the article. Silver can crash hard as we have seen this year, way too risky for the same type of capital we are discussing here.
The whole point is that T is such a safe and steady stock for the last 5 years that if you are patient with your entry price, and when you consider the entire equation: capital preservation, yield, time lockup, it actually does offer a legitmate alternative for these type of investors. Remember, they are losing capital these past two years utilizing CDs, that is a risk as well. Everything has a cost/risk associated with a given strategy. But come on, Silver isn`t even close as a comporable asset swap here!
'A dog with fleas' as Gekko would say...
I must be really effed up. I own silver AND T
"Investing" in CD's? Good one. "Your principal base should be safe"? Oh yes, we all know that only bad stocks go down in a bear market. This is shitty advice. Get on your bike.
Silver, really? Like Silver didn`t drop all the way to $32 just this year from around $50......freaking morons on ZH.....really:)
You are such a sucker! Everyone knows the price of silver is egregiously manipulated on the paper futures market by JPMoronCrapheads and their ilk. Everyone also knows silver has gone from $4 to $41 (today) in the past decade. Everyone else knows they would have gotten much less return on any other asset with the sometimes exception of gold. And you're really gonna pretend that we aren't thrilled with how well gold and silver has been protecting our savings compared to everything else - like real estate, which "only goes up"?
Hahahaha. How disingenous can a human being get? You're just mad as hell you didn't buy silver a few years ago... or a few months ago. Just to remind you:
$41 - now
$34 - 6 months ago
$19 - 12 months ago
Oh yeah, that's such a HORRIFIC performance. More than a double in the past year. We are sooooo bummed out! Because we were hoping for a triple. Hahahaha. NOT. In fact, we're just happy when our savings holds it purchasing power, while the rest of you fools lose your shirt (even while thinking you haven't lost all that much, because you only look at the "nominal prices" in those "fiat dollars" that have lost 1/3 of their value in the past year. You understand that? ONE-THIRD.
!!!!! SUCKERS !!!!! FOOLS !!!!! SUCKERS !!!!! FOOLS !!!!! SUCKERS !!!!!
And apologist for the predators-that-be and predator-class that raped you raw.
Asset protection is the smart move today, and physical gold and silver are real.
And finally. Anyone who buys ANY paper assets now, is begging to lose huge.
Nice rebuttal to a troll honestann.
NONE of our financial problems have been solved. And it looks like NONE will be for at least a while. I'll take the gold (first) and silver (second).
He put the anal in analyst.
Nothing is solved.
I think some of it is short termers evaluating long termers, based on short term (millisecond?) criteria.I can flip it too and say that those of us long term think the short termers are WRONG. If trading is your goal, perhaps we look mad. If you want insurance against a long term trend of being RAPED AND ROBBED by your government, as the fiat steals purchasing power by printing, then we are the sane ones.
Depends on your goals. Personally, if I was trying to trade this crap, I would need depends!
Good luck HFTs and Holders alike. This is another false dichotomy to keep us at each others' throats.
You know, though, if I was interested in "trading" instead of "value protection", gold and silver are easy as hell to make money trading. The slimeballs at JPM and friends periodically knock gold and silver down, especially when they've been on a serious roll lately. So a trader could simply wait until they beat the crap outta gold or silver, then back up the truck (or buy on modest leverage) and KNOW they will have a profitable exit point fairly soon. At very worst, one or two months, and that's an extreme outlier.
So, while I'm not a trader and not interested in being a trader, gold and silver are a traders dream. Just ask that guy who gave testimony to the CFTC (or one of those agencies). He should how every alter trader in those markets knows in advance when JPM is about to crash the market.
There is room for all.
I inherited a some "T" about 25 years ago, put dividends in the stock purchase plan and forgot about it. Sold spinoffs and 25 years later it has become a nice asset. Strictly an accident. Started too small to bother with.
Looks like we got us another Johnny Bravo. Good! I could use the exercise.
Yes buy T for 29.25, sell an October 29 call for a buck, and enjoy a 43c divi on the way!
That'll return $1.18 (or 4%) return in 55 days so long as T stays above 29. Or 75c (3%) in 40 days if they exercise for the divi.
You'd need to invest for several years to earb this much in a CD!
Very good point, if this is supposed to be an alternative to a CD, doing it as a covered call strategy is the only way to lower your downside risk. You could get a $15 strike jan 13 leap at $14.10 cut your cost basis in half essentially doubling your yield while cutting downside.
Don't think the Leap helps...with the stock at 29.26 the Jan '13 15 Leap ia 14.10 - 14.55. Maybe you buy it at 14.5 but you don't get the divi until you ezercise.
So for me you are overpaying for downside protection you don't need. Trust me, you'll have bigger things to worry about if Telephone dips below 15!
AT and T was a much better buy with the yield of ten percent a while back. Although i think that was ten years ago when silver was 7 bucks too.
ZH is made up of a bunch of tin foil lunatics. Come on, anybody that has followed this stock knows it ain`t going below $20 a share in the next 2 years, even in the financial collapse the lowest this stock has ever been in the last 5 years is around $22.40, and inflation isn`t 10%, for all intents and purposes this stock is a CD!
Then sell some more puts!
http://www.shadowstats.com/alternate_data/inflation-charts
Jesus, Tylers...just open my head and shit in it, whydoncha?
Come on.
OK, that's it -- I'm selling my gold and silver and buying AT&T as a hedge against inflation.
more crappy advice from the status quo, inflation now 10% a pure money loser at 5.9%
even the little kids in gradeschool understand that number .
done t buy gold or silver well because it may go up 20% a year for the next5ive years .. and then balance out at 8000 for a backing for bills of exchange .yadda .. silver is a lock on 100. and higher ,
but these guys cant see the forest for the fog.. .. ...
o i know this person sells att stock .. makes nothing off gold and silver.
+ $1790 to dumpster.
AT&T is regulated, and they have lots of competition with high capital requirements. That's NOT a great business to be in.
Gold and silver are better places to hide.
It IS very hard to find INCOME now though without taking on high risk.
"Paper food" ETFs like DBA, JJG and DBA might be good places as well if food inflation goes up like I think it will. Anyone believeing that China will rise (I do have my doubts about China becoming No. 1) should consider a way to play on rising grain and food prices.
+1
I would be better off shoving corn cobs up my arse than buying AT&T. The fvkkking CWA union goons at AT&T show up in their CWA union goon shirts to connect a pair of copper cables. F them!
If you want cash flow and a rock solid stock buy a gold mining company like NEM.
I have heard some noises to the effect that SLW may consider paying thier divvy in physical silver to drive out the shorts...
Yahoo finance indicates that current liabilities are greater than current assets. Isn't that potentially a huge problem if credit markets feeze up?
http://finance.yahoo.com/q/bs?s=T+Balance+Sheet&annual
The current Jefferson nickel (copper and nickel) has a melt value of almost 6.3 cents; a far better value than ATT
Melt value of nickels and pre-1982 pennies is easily found at coinflation.com. Good site.
oh my!
Base Metal Coin Melt Value CalculationGenerated on August 29, 2011. Values Used: Total Face Value: $500.00 Coin Type: 1946-2011 Jefferson Nickel Copper Price: $3.9691 / pound Nickel Price: $10.9515 / pound
Answer:
Total melt value is $629.94.
AT&T is the 2nd largest political contributor among companies. It's a mystery why the Federal government won't open up FCC white spaces & allow for unregulated free WiFi... for the cost of about one week in Afghanistan.
Of course, if that happened, doubt the future revenue prospects would look bright for cellular.
Like this guy says: http://www.xtranormal.com/watch/12373724/q-a-w-larry
This is incredibly stupid advice. With this market volatility you can lose multiple years worth of dividends in an afternoon.
Right now there is little difference between precious metals and cash. Both yield zero. Both have fluctuating values. But one will respond better to currency devaluation.
+ $1790
Seting aside the inflation arguments well articuled by others here... Stocks as an alternative to CD's? Maybe as an alternative to bonds, but CD's? If a broker tells you a stock is a "safe" alternative to a CD, RUN, don't walk for safety.
Not mentioned are some of the reasons AT&T's yield is so high: (1) Declining legacy, wireline revenue. (2) Higher costs for wireless, subsidizing smart phones, (3) Overpaying for T-Mobile in the hopes of getting monopoly profits, (4) Regulators run amok at the FCC, (5) Compressing margins, (6) Mostly dollar based costs and revenues, unlike most large US companies, and on, and on.
Fuck AT&T.
U-verse LOL
The same bandwidth cap no matter what speed you pay for. Total shit.
lets see if the stock drops 5% then its a wash. a 5% drop in the share price of ATT is 1 1/2 pts? that's all that's between my great investment and even, or shall even shudder to think negative returns? oh thats right i still pay taxes on the dividend even if i am underwater on the stock.