Despite being booted out of the Dow Jones Industrial Average in early 2015, AT&T Inc. (NYSE: T) shares have been a top performing yield stock in 2016. AT&T has even seen a year-to-date gain of 30% coming into Thursday. Now one analyst is saying that this stock’s run has gone too far despite it still having roughly a 4.5% dividend yield. Also covered in the same light is Verizon Communications Inc. (NYSE: VZ) with its 4.05% yield.

Citigroup issued an analyst downgrade from Buy to Neutral on Thursday on AT&T, noting that the dividend yield chase has gone too far. Again, the same call was more or less made on Verizon in this call. What makes the call more interesting is that Citi also raised its price targets at the same time it made the official rating downgrades.

AT&T’s price target was raised to $46 from $42, and Verizon’s price target was raised to $58 from $53. The Thomson First Call consensus analyst price targets are $39.79 for AT&T and $52.52 for Verizon, both of which are lower than the current share prices of these telecom giants.

Citi’s main view here is that the crowded dividend trade, meaning investors chasing stocks with solid high-yields that are safe dividends, could reverse course if interest rates manage to rise. Citi’s view is that mega-cap telecom stocks have been chased because of their defensive characteristics and were the beneficiaries of a Fed-induced low rate investing climate. This has taken place even as the fundamental performance has been arguably mixed for the industry and specifically for AT&T and Verizon.

Citi’s report said:

Our lowered rating contemplates the investor demand for dividend yield, which has benefited the shares in recent periods and put valuation multiples near historic highs.

Verizon shares were last seen trading down 0.9% at $55.72 on Thursday, in a 52-week trading range of $38.05 to $56.95. AT&T shares were down 1.0% at $42.65, versus a 52-week range of $30.97 to $43.89.

24/7 Wall St. would remind readers that other analysts have commented about AT&T and other high dividend stocks in recent days. Some analysts remain very positive, and some analysts seem more concerned over valuations.

On July 1, Bank of America’s Merrill Lynch reiterated its Buy rating on AT&T, along with a $46 price objective raised from $42 in that call. That report was a post-Brexit investing theme with other companies with minimal exposure to the European and Brexit woes. The firm noted:

Analyst David Barden is raising his price objectives on AT&T (from $42 to $46) and Verizon (from $55 to $59). The price objectives are based on relative multiples versus the S&P 500 of 0.96x and 0.92x. The target relative multiples are based on the premium investors historically have paid for the relative fundamental stability and yield AT&T and Verizon offer during periods of economic and political uncertainty. The Brexit vote result was an unexpected event that has had immediate and will likely have lasting effects on sentiment. The upcoming US election only adds to uncertainty that could drive a continued flight to quality.

On July 1, JPMorgan reiterated its Overweight rating and raised its price target to $45 from $40. Its report actually listed AT&T as its “top yield investment” and it said:

Our positive thesis on AT&T is based on cost cutting including DTV synergies, lower operating expenses needed to support slowing capital spending, and Project Agile, which should drive FCF from approximately $15 billion in 2015 to over $20 billion in 2018 (we do not look for significant improvement in customer acquisition or revenue). We expect investors to become more comfortable with the dividend as better FCF drives the payout ratio down. We see AT&T’s dividend yield of 4.44% as attractive relative to the 10-year US Treasury at 1.47%, the S&P 500 dividend yield of 2.20% and Verizon at 4.05%. Our year-end 2017 price target of $45 implies a modest multiple of 15.0x on a P/E basis and 7.2x EV/EBITDA on 2017 estimates. At our $45 price target, AT&T’s dividend yield would still be substantial at 4.32%.

On June 30, S&P reiterated its Buy rating but also only kept a $42 price target on AT&T. That report said:

We look for revenues to increase 13% in 2016 and 2.3% in 2017, following an 11% rise in 2015, which reflects the completion of the DIRECTV acquisition in July 2015.We are encouraged by bundling opportunities related to phone, TV and broadband services given T’s more extensive portfolio. We are encouraged by efforts to expand in Mexico, and see revenue within this region doubling over the next three years. We see pressure on the U-verse subscriber base, but rising strategic business services. We expect wireless subscriber additions to be pressured by competitive pressures from value providers T-Mobile and Sprint.

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On June 28, Macquarie Research reiterated its Outperform rating on AT&T and it had a $45 price target. The Macquarie report said that AT&T is more than a yield play, as follows:

The acquisition of managed solutions provider QuickPlay could further boost the quality of DirecTV Now, Preview, and Mobile, three streaming products that will hit the market in 4Q. Its success could boost confidence in the overall strategy of serving integrated products. We estimate total net adds could reach 1.5 million to 2 million by the second half of 2018 and importantly serve as a Trojan horse to gain wireless net adds, as they open up the service to Verizon, T-Mobile, and Sprint.

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