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Don’t Overlook AT&T, It’s One of The Best Dividend Stocks

December 14, 2014 | About:

It’s that time of the year when telecom giant AT&T (NYSE:T) is expected to announce its dividend payment. AT&T has a rich history of increasing its dividend payment, and shareholders have their hopes tied this time as well, with expectations to see another round of dividend payment hike. This telecom stock has been one of the favorite dividend stocks for investors, managing to raise its dividend and delight its investors for three continuous decades.

Shareholders are now awaiting the next dividend hike announcement by the Dallas based carrier. The chart below shows the earnings per share and dividend per share of the company over the last decade. The company’s payout ratio has also been on the higher side which means that the company distributes a good chunk of its profits to investors. In 2011 and 2012 the company’s earnings per share dropped drastically, but still announced an increment in dividend payment over the previous year. This made the payout ratio go north of 100% in the two years.


The red circles indicate the two years when payout ratio went above 100%. Data taken from morningstar.com

Concerns regarding the telecom player
Increasing competition in the wireless market is having a bearing on the company’s revenue and profit growth, which has been slowing over a period of time. Consequently, it is having an impact on the earnings per share of the company and the dividend payment. Increasing competition from smaller rivals such as Sprint and T-Mobile, in particular, has made AT&T to lose several valued customers to rival’s network.

The company’s churn rate is estimated to get higher in the current quarter compared with last year same quarter, said AT&T CFO John Stephens at the recently held UBS Annual Global Media and Communications Conference in New York. However, AT&T is not really worried about it as the company continues to acquire new customers that’s offsetting the loss of subscribers to rival’s network.

As far as the revenue is concerned, it went up by a mere 2.5% year on year in the first three quarter of the current year, while earnings per share plunged 6% for the same period. Comparing with the closest rival Verizon (NYSE:VZ), we see that the Big Red’s last quarter earnings growth came in pretty impressive at 14%, which is majorly attributable to the strength in the wireless business. In contrast, AT&T’s earnings dropped 4.5% in the same period.

An attractive dividend payment master
While these issues might be raising concerns regarding AT&T’s ability to remain a big dividend payer, it offers one of the best dividend yields of 5.4% across industries. This is why investors have loved this stock And this gives reasons enough for investors to get attracted.


Data taken from morningstar.com

Also, the company’s free cash flows have continued to grow from strength to strength. The company’s free cash flows have been very irregular owing to massive investments made in building 4G LTE infrastructure. However, it must be noted that despite heavy investments in network upgrading, the company’s free cash flow has been healthy enough to sustain the dividend payments comfortably. The chart above shows the free cash flow over the past decade along with the free cash flow per share. The free cash flow per share has been enough to fund an attractive dividend per share all through the years.

Investors looking to maximize their returns from stocks have always considered AT&T at the top of their list. AT&T offers one of the best dividends in the telecom industry with reasonable payouts, making it a perfect income stock.

About the author:

Quick Pen
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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