AT&T (T)

AT&T (T) provides mobile services,  subscription TV,  and high-speed Internet services for businesses and consumers.  T is also breaking into the connected car and connected home markets.

T pays out a hefty dividend, traditionally yielding between 5% and 6% annually.  Most investors own T because of the consistent dividend payout, which T raises by roughly 2% per year.  I am one of those investors.  This is a "sleep at night" stock that has very low volatility.  However, I see some potential issues with T's business going forward that may make sleeping a little less easy...

First, wireless competition is getting fierce.  Verizon is the major competitor, but Sprint and T-Mobile are doing everything they can to steal subscribers from the "Big 2."  Second, the cable subscription model is outdated.  The consumer today does not want to pay for a bunch of junk.  How do I know this?  Because I am a consumer today, and I do not want to pay for a bunch of junk.  I want ESPN to watch Duke basketball games...and that's about it.  If I have to watch a show, which I very rarely do, I want to pay for that show and nothing more.  I predict that I will be able to purchase exactly the programs that I want to watch for well under $100 a month in the near future.  I would like to see T have a strategy for that competition.

T's position in my portfolio is that of a cash cow.  I want to collect T's dividends every quarter without having to worry about wild fluctuations in the stock price.  I expect T to underperform the market while the market is hot, but it will act as a buffer if the market turns sour.

What to watch for: Bond rates.  This stock serves as a "bond market equivalent."  This means that, while bond rates are low, investors will choose T to receive a desirable income.  If bond rates rise significantly, some investors will leave T for the safer bonds.  This will in turn increase the yield of T, making it more attractive.  Catch-22.

Common Cents Take: T is a steady income, low volatility position has its place in my portfolio; however, I will continually monitor updates on competition to see how I will proceed with T in the future.