So the lesson learned here is not to invest in stocks for the dividend which has a high dividend and a very high debt load. In the early 2010's, there was a big push by investors to force companies to lever up with increased debt with low interest rates to pay out increase dividend payouts and push prices higher.
I heard stories of some of this in action, so the accounting analysis is that the EPS per share is minorly impacted with low rate debt as only the interest on the debt is deductible on the income statement. However, the principle still has to be paid, and that shows up only in the cash flow statements. Well, the investors were just greedy for income or price appreciation as always their primary goal. . . So years later the debt is coming due, the business hasn't kept up as the economy is not growing like it did 20 years ago, and companies are stuck with a heavy debt, income which has been slowing down and interest and dividend payments choking off cash flow for investments. . . .
Likewise, as Bloomberg mentioned by one of the analysts, telecom companies requires large cash investment to maintain their services against the competitors, and AT&T is slowly falling behind. One of the sneaky things AT&T did was to limit wifi calling during the day on the service plans about a year ago . . . which then forced phones to switch over to cell calling and people's bills went up tremendously. . . was not great for customer renewals. .. a sign that they needed cash . . . it was temporary, but now they have run out of temporary
The issue with individual stocks is specific event and management risk, which can be diversified away with a larger portfolio. . . GE was in the same boat, and two different friends worked there and told me of the revenue manipulation for growth until they reached the limit of revenue legally, went beyond legal, and then the company collapsed in price due to debt and accounting issues . . . now been selling off divisions to pay off debt. . .
so with debt there is no free ride, with issuing shares, dilution, the company lives on in its current form. . . grad school case final exam, i picked debt over equity. . lost my good grades during the semester for a lower final grade. . . . will always remember that. . and the pandemic caused more debt than equity issues. . .
finance guy
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