AT&T Stock Analysis & an AT&T Dividend Review

Analyzing AT&T Stock For Dividends

The high AT&T dividend rate has attracted many investors to this stock.

Therefore, let’s look at this well-known dividend-paying company.   Especially since AT&T stock is one of my larger and long-time holdings.

Also, I want to take a close look at the AT&T stock dividend. To see if this company is still right for a good dividend income portfolio.

AT&T dividend stock analysis

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

Editors note: AT&T has announced the spin-off of their WarnerMedia business. And WarnerMedia’s proposed merger with Discovery. After the deal closes, we will take a closer look at the new AT&T. And update this article in addition to our position on the stock moving forward. As of now, I’m not a fan of the probable dividend reduction that was indicated as part of the transaction. But for now, let’s focus on AT&T pre-spin-off.

To kick it off, let’s first answer some key questions about AT&T stock. And its dividend.

Then, we will circle back. And cover all of the supporting details. Here we go…

Is AT&T Stock A Good Investment?

AT&T may be a good investment. But, it depends on your investment objectives.

Are you in search of high dividend income investment options? But are willing to sacrifice growth potential in both the dividend and stock price versus other investment alternatives?

If you answered yes to these questions, then AT&T is a good investment.

Is AT&T A Good Dividend Stock

I think AT&T is a good dividend stock. Because the company has a long history of rewarding shareholders with dividends.

But, one of my readers spoke up about this very question. And I would like to share his thoughts with you.

First of all, this input came from a reader named Bill. From this article: How to build a blue-chip dividend stock portfolio. Where AT&T was featured in the model portfolio constructed for that post.

This is what Bill had to say…

I appreciate this article and have a few thoughts to offer.

First of all, there are companies that offer both price appreciation and dividends. I’d suggest adding NextEra Energy (NEE). NEE is investing in renewable energy infrastructure, delivering double-digit percentage dividend growth, has great management, and good stock price appreciation.

Furthermore, for the technology sector, AT&T is listed. What about Verizon? It is not necessarily a growth stock. But I would submit that Verizon is a better investment choice in this space. AT&T’s debt load after the DIRECTV acquisition has left it with “some challenges.” Thanks, Bill R.

So, I conclude that Bill thinks there are better dividend stocks for his money. His stock selection criteria would clearly lead him in a different direction.

And, that’s okay. I can’t argue with Bill. He makes some good points.

I like NextEra Energy and Verizon too! But, as I said earlier, it depends on your investment objectives.

Next question, please…

Is The AT&T Dividend Safe?

AT&T dividend safety

When I speak of safe dividend stocks and dividend safety. I mean safe from a possible reduction in the foreseeable future.

First, when I look at AT&T’s free cash flow, I see ample dividend coverage. The dividend consumes a manageable fraction of that cash. To me, that enhances dividend safety.

On the other hand, after the spin-off. AT&T investors will likely receive fewer dividends than before the transaction. So, I can’t make an argument for safety.

It doesn’t matter what the financial metrics tell us. Because in the end, paying dividends is not required. Furthermore, management can change their dividend payment policies at any time.

And finally…

Is AT&T Stock A Buy?

I do not believe AT&T is a good dividend stock to buy now. Just my opinion.

Maybe after the spin off it will make more sense to me.

Of course, do your own research and make your own decision. After all, it’s your money! So, invest wisely to make your dividend snowball grow.

Now for the supporting details related to these questions…

AT&T Company Background

AT&T is a world leader in communications, media, entertainment, and technology.

Business Units

The company consists of several business units:

AT&T Communications provides mobile, broadband, video, and other communications services to U.S. based consumers. And nearly 3 million companies globally.

WarnerMedia consists of WarnerMedia Entertainment, WarnerMedia News & Sports, and Warner Bros. This is the unit in the spin-off transaction.

AT&T Latin America provides mobile services in Mexico to consumers and businesses.

Revenue Share By Business Unit

The communications business unit is the dominant player in this business based on revenues. Followed by WarnerMedia. Then Latin America.

Business Objectives

Through these businesses, AT&T brings together the following key elements in media and entertainment:

  • Premium video content
  • A large base of direct to consumer relationships
  • High-speed networks optimized for video and advertising technology

Furthermore, the company aims to lead the next revolution in technology, media, and telecommunications. Finally, they are in a race with Verizon to roll out 5G technology.

Source: AT&T Company Profile

AT&T Stock Symbol

AT&T stock trades on the New York Stock Exchange. It operates under the ticker symbol T (NYSE: T).

And when I trade my dividend stocks, I use the Webull app. For fast, commission-free stock trades. Plus, the app has great stock research tools.

Next up, the AT&T dividend review. AT&T has a long history of dividend payments.

So, let’s cover some of the basic questions an investor might have. I will do my best to explain everything there is to know about dividends from AT&T.

AT&T Dividend Rate

AT&T has annual forward dividend. It is simply the last dividend payment approved by the company. Multiplied by the number of times AT&T pays dividends each year.

Take the annual forward dividend. Divide it by the current stock price. And you get the stock’s dividend yield…

AT&T Dividend Yield

I prefer to invest in dividend stocks with yields between 3 and 5%. At this time AT&T exceeds this range.

So, for me, the stock has a high dividend yield.

And may indicate that AT&T stock is undervalued. On the other hand, it could be a sign of investment risk.

Regardless, for high dividend yield company’s like AT&T. I like holding them in an IRA. For the tax benefits, those accounts provide.

M1 Finance has some great IRA account options. And provides other valuable money management services through their financial app too.

If you have been meaning to open an IRA, get it done the easy way. By checking out M1 Finance right here.

How Often Does AT&T Pay Dividends?

AT&T pays dividends 4 times each year. They follow a typical recurring dividend payment pattern used by many U.S. based dividend stocks.

In What Months Does AT&T Pay Dividends?

Dividend payment months are February, May, August and November.

During these months, the dividend is paid on the first business day.

When Is The Ex-Dividend Date For Each AT&T Stock Dividend?

AT&T’s ex-dividend date falls around the 10th day of the month BEFORE it pays dividends.

Do you want AT&T’s next dividend payment in February, May, August, or November? Then, make sure to purchase your shares before the ex-dividend date.

Remember that the exact ex-dividend date. And dividend payable dates vary each quarter.

So, be sure to check out AT&T’s investor relations website. There you can find the latest dividend payment information.

AT&T Dividend History

AT&T had an impressive consecutive annual dividend increase streak.

For example, the company had increased its dividend on an annual basis starting back in 1985 going through 2019.

AT&T Was A Dividend Aristocrat

So, AT&T was a Dividend Aristocrat. But, it is no longer.

For the record, Dividend Aristocrats are a high-quality dividend-paying company. To qualify they must have increased their dividends each year for at least 25 years in a row!

Related: 60 plus years of dividend growth from this dividend stock

AT&T Dividend Growth Rate

Do you believe in the old saying that “slow and steady wins the race”?

If yes, then the old growth rate of dividend payments from AT&T was for you. Usually 2% per year.

Unfortunately, there is no dividend growth to talk about anymore.

Does AT&T State Its Dividend Policy?

In a past release, AT&T provided information about future dividend increases.

I really appreciate it when a company sets expectations for its dividend. It helps me plan for my future income.

And better understand how the company views its dividend going forward. Here is what they said:

Dividend growth: Continued modest annual increases; dividends as a % of free cash flow – less than 50% range in 2022.

This illustrates an important fact. Specifically, paying dividends is not required.

And a company can change its dividend policy at any time. And that is exactly what AT&T management did.

But one more important point about getting timely dividend payments from AT&T.

Last AT&T Dividend Increase

Each year, AT&T typically announced a dividend increase in December. But when they elected not to do so in 2019. It was a red flag for me.

Because the first step to reducing this type of recurring cash dividend is? Not increasing it based on the timing of past dividend increases.

Also, not doing so conflicted with the company’s statement that I just shared with you. Specifically, the expectation for modest annual increases.

So, management changed its mind. And the company’s run as a Dividend Aristocrat came to an end. Since an increase to the quarterly dividend payment was required before the end of 2021.

Yes. Tough membership requirements for sure. That’s why the Aristocrat list is an excellent place to find good dividend growth stocks.

Okay. Let’s move on to AT&T’s business fundamentals…

AT&T Revenue Trend

AT&T 7 year revenue trend
AT&T 7 year annual revenue trend

AT&T’s wireless and wired communications businesses are the largest share of the company’s revenue.  But, as you might expect, the wired business has been in decline for years.

In addition, wireless has become a more price-sensitive commodity service.  These trends in the communications business have put downward pressure on revenues.

That’s partly what led the company to seek acquisitions to grow.  First, the acquisition of DIRECTTV in 2015.  Then, Time Warner in 2018.

AT&T Dividend Payout Ratio Based on Adjusted Earnings

AT&T EPS and dividends - 7 year trend
AT&T 7 year earnings and dividends per share trend

I find AT&T’s accounting earnings hard to interpret.  They are full of non-cash costs for depreciation from the company’s large but necessary capital investments.

In addition, they include amortization costs. And one-time charges associated with their acquisitions.

Furthermore, in 2017 the company took a large one-time non-cash expense to account for the impact of the new tax cut and jobs act. In 2020 there were more non-cash impairment write-offs related to the video business.

Both of the above-described impacts were factored out of the chart above. To get a clearer picture of underlying profits.

Over the long term, AT&T’s accounting earnings exceed the dividend payout. However, not by much and it is certainly not a smooth ride. Even after taking into account the adjustments I just described.

For the most part, AT&T’s reported accounting earnings do not add value for me. When assessing the company’s prospects as a dividend growth stock.

So, for capital and acquisition intensive businesses like AT&T. I prefer using free cash flow to assess the dividend payout ratio. It is a much better indicator of dividend payment capacity, in my opinion.

And at the end of the day, dividends are paid in cash. And that cash funds our dividend retirement strategy.

Let’s take a look at cash flow next…

AT&T Dividend Payout Ratio Based On Free Cash Flow

Free cash flow is the cash-based profits from the business less cash spent on capital investments. It’s typically what stock dividends are paid from.

And AT&T must make large capital investments each year.  Those cash outlays are especially critical to maintain, upgrade and expand their telecommunication networks.

The chart below presents the AT&T dividend payments versus annual free cash flow generation.

AT&T Dividends And Cash Flow Chart

AT&T cash flow analysis
AT&T last 3 years cash flow and dividends

The company’s dividend is covered by cash flow. In fact, over the past 3 years, the AT&T dividend payout ratio was about 55%. This is pretty solid dividend coverage in my opinion.

In recent years, AT&T has used excess cash over and above dividend payments to pay down debt. This is good to see, as the company took on large amounts of debt in recent years.

Why? To fund their Time Warner and DIRECTV acquisitions.

Because of this extra debt, let’s check to see how AT&T’s credit rating and balance sheet look. These areas are important when evaluating AT&T dividend safety.

Most noteworthy, I prefer to invest only if the stock has a high degree of dividend safety.

AT&T Credit Rating

AT&T has a Baa2 and BBB credit rating from Moody’s and S&P, respectively.  The credit ratings represent “investment grade – moderate credit risk”.

Credit Rating Evaluation Grid

Credit rating evaluation grid for each major rating agency

A solid dividend-paying company usually has investment-grade credit ratings.

And, AT&T is no different.  However, AT&T’s credit ratings are at the very low end of the investment-grade range.

Lower ratings are likely a result of AT&T taking on large amounts of debt in recent years.  The higher debt was primarily due to costs from acquiring DIRECTTV and Time Warner.

Finally, it’s a smart idea to keep tabs on your own credit rating. You can do so for free using Credit Karma.

AT&T Balance Sheet

Finally, AT&T’s debt (including lease obligations) to equity ratio checks in at nearly 1 to 1.

Although absolute debt levels are very high. Debt to equity reflects a fairly healthy and balanced capital structure.

Now, for dividend safety…

AT&T Dividend Safety

Is the AT&T dividend safe? This is a key question. Because owning a stock with a safe dividend is important to me.

I immediately see a high dividend yield when I look at AT&T stock. So, one of my first concerns is dividend safety.

To judge dividend safety, I look at many of the topics we have discussed so far. Specifically,

  • Business fundamentals
  • Dividend payout ratios
  • Credit ratings and balance sheet
  • Dividend history
  • Dividend yield

Based purely on financial metrics I conclude that AT&T’s dividend is safe from a reduction in the foreseeable future.

In my opinion, the biggest threat to AT&T’s dividend safety is management decision-making.

Even though the company has the cash flow to continue paying the dividend. Management may decide to deploy that cash elsewhere. And it appears they have!

AT&T Dividend Growth Forecast

For my income planning purposes, I make a dividend growth forecast for each dividend stock that I own. I use much of the information we have discussed thus far with special emphasis on:

  • Business growth potential
  • Dividend payout ratios
  • Dividend policy statements (when provided)

All bets are off here. I’m expecting fewer dividends to be paid after the spin-off. So, there will be no dividend growth.

Next, stock valuation. Then, I will wrap up.

AT&T Stock Analysis: Valuation

Let’s judge value by using the Simply Investing Report & Analysis Platform.

Simple Investing Report

The Simply Investing Report uses several metrics to assess the value of a stock. It is a rigorous evaluation.

Based on the Simply Investing Report criteria. And at the time of this update AT&T stock is considered undervalued.

Valuation metrics can change quickly. Based on swings in the stock price. And shifts in business performance.

That’s why I like the interactive database from Simply Investing. Because it helps me monitor the dividend stocks in my portfolio.

Okay. That’s all I have on AT&T. Allow me to conclude with a few parting thoughts…

AT&T Stock Analysis Wrap Up

To conclude, here are a few key points that I take away from this AT&T stock review:

  • AT&T has a high dividend yield
  • Investment-grade credit ratings and a reasonable debt to equity ratio
  • Plenty of free cash flow to cover the dividend
  • Uncertainty created by the spin-off of WarnerMedia

For now, I will continue to hold my shares. But I will admit, AT&T has been one of my worst performing investments.

On the other hand, when it comes to managing my total financial picture. Not just dividend stocks. I pull all of my accounts together. And analyze spending with just 1 tool.

That’s Personal Capital. Best of all, it’s free to sign up and use. So, be sure to give Personal Capital a try.

Other Dividend Stock Analysis You Might Enjoy…

My Favorite Dividend Investing Resources

Finally, here is a summary of the tools I use and mentioned throughout the article.

Author Bio, Disclosure, & Disclaimer: Please join me (Tom) as I try to achieve my goals, find my next place to live, and make the most of my money. But understand, I am not a licensed investment adviser, financial adviser, real estate agent, or tax professional. I’m a 50-something-year-old guy, CPA, retired finance professional, and part-time business school teacher with 40+ years of DIY investing experience. I’m just here because I enjoy sharing my findings and research on important topics. However, nothing published on this site should be considered individual investment advice, financial guidance, or tax counsel. Because this website’s only purpose is general information & entertainment. As a result, neither I nor Dividends Diversify can be held liable for any losses suffered by any party because of the information published on this blog. Finally, all written content is the property of Dividends Diversify LLC. Unauthorized publication elsewhere is strictly prohibited.

I own AT&T stock and collect the AT&T dividends!

8 thoughts on “AT&T Stock Analysis & an AT&T Dividend Review”

  1. Hi Tom,

    I also feel comfortable buying AT&T. The world becomes increasingly digital each day (particularly under the current circumstances), and AT&T is one of the market leaders there.

    Cheers,
    Miguel

    • Hi Miguel. It is amazing how dependent we all are now on instant connectivity. It won’t be going away soon, that’s for sure. A good essential service company in my opinion. Tom

  2. I have AT&T too! So many tempting US stocks right now and not enough US cash. Thanks for the great review.

    • You are welcome, GYM. It is a good time to add a little bit to stocks as your cash flow permits. At least that is what I am trying to do no matter how difficult it can seem to pull the trigger. Tom

  3. Such a great post. I love passive income investment because it has got more advantages compared to disadvantages. Dividends are cool.

  4. Thank you for such thorough and high quality analysis. I am a neophyte investor and this type of analysis, and not the type that hypes, is what I look for to help me make decisions. I bought AT&T today. Looking forward to years of dividends.

    • Thank you for your kind words. I’m glad you found the stock analysis useful. Good luck with your investments! Tom

Comments are closed.