AT&T's Dividend Yield of 6.6%: Reality Check and Prospects

Wednesday, 10 April 2024, 07:45

This post delves into the sustainability of AT&T's high dividend yield of 6.6% and whether investors should be wary of a potential dividend cut. While the yield may seem enticing, the fundamentals suggest that the dividend is currently safe, backed by solid free cash flow and earnings. However, the company's substantial debt load poses a risk that investors need to consider when evaluating the long-term prospects of the stock.
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AT&T's Dividend Yield of 6.6%: Reality Check and Prospects

Is AT&T's 6.6% Yielding Dividend Too Good to Be True?

AT&T's Dividend Safety

Should AT&T investors brace for a dividend cut? If you come across a dividend stock with a yield exceeding 5%, it wouldn't be out of line to question whether its dividend is sustainable. And the higher that yield is, the greater the doubts that you have come across a safe income stock.

It's this truism that likely goes some way toward explaining why investors remain hesitant about AT&T (NYSE: T) stock. The stock itself trades down about 14% over the past 12 months. That drop in price has helped push its dividend yield up to 6.6%, which is more than 4 times the S&P 500 average yield of 1.4%.

AT&T's Fundamentals

  • AT&T showed a modest 2.2% year-over-year revenue growth.
  • The company's operating income turned from a loss to a profit of $5.3 billion.
  • Free cash flow of $16.8 billion for the year exceeded dividend payments ($8.1 billion).
  • The company's payout ratio is below 60% based on free cash flow and earnings.

AT&T's dividend doesn't appear to be in any danger right now, indicating a potential opportunity for investors.

Debt Concerns

  1. AT&T's large debt load stands at $127.9 billion.
  2. Debt-to-equity ratio is higher than historical averages.
  3. Rising interest rates may impact telecom companies' ability to grow dividends.

While AT&T's debt is a concern, its robust free cash flow suggests that the dividend remains secure for the foreseeable future.


This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.


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