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5 Blue-Chip Stocks to Avoid

There's a good reason why these 5 stocks have underperformed

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Blue-Chip Stocks to Avoid #2: AT&T (T)

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The AT&T (T) story is largely focused on its 5.7% yield. With a dividend well above two times that of the broader market, T stock looks like a screaming buy.

The trouble is, there are no secrets with a stock like AT&T — and its yield reflects the rising competition and lack of growth prospects. After posting EPS of $2.50 in 2013, AT&T is expected to earn $2.65 this year and $2.78 in 2015.

Here, advocates will say that the dividend alone is reason enough to buy AT&T stock, that it’s a secure payout from a solid “bond proxy.” This might be true to some extent, but income investors are also taking on stock market risk in exchange for the yield. Just this year, AT&T shares have shed 6.2%, which has already more than erased the return from dividends.

Investors aren’t going to go broke in AT&T. However, the limited upside from a challenging competitive landscape means that the yield, while outstanding, doesn’t offset the potential principal risk. On this front, it’s worth noting that even as the S&P 500 has gained 24% in the past 12 months, AT&T stock has fallen about 6% (with dividends included).

Given AT&T’s track record in a roaring rally, investors need to question what will happen to the stock if the broader market encounters rougher going in the months ahead.

Article printed from InvestorPlace Media,

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