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

Analyzing AT&T Stock – Is Its Big Stock Dividend Safe?

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

Therefore, I thought it time to take a fresh look at this well-known dividend-paying company.   Especially since AT&T stock is one of my larger and long-time holdings.

So, let’s dive into an AT&T stock analysis. 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.

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…

Editors note: This article was last updated PRIOR to AT&T’s announced spin-off of their WarnerMedia business. And its proposed merger with Discovery. As the deal gets closer to closing, 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. I’m not a fan of the dividend reduction that was announced as part of the transaction. But for now, I will let the dust settle and hold my shares of AT&T.

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.

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 dividend safety, I mean safe from a possible reduction in the foreseeable future.

Yes. I believe AT&T’s dividend is safe. There are a few red flags that we will get to later in the article.

But when I look at AT&T’s free cash flow, I see ample dividend coverage. The dividend consumes less than 60% of that cash.

And finally…

Is AT&T Stock A Buy?

I believe AT&T is a good dividend stock to buy now.

Why? Because all of the valuation measures I review later on indicate that AT&T stock is undervalued. Plus you get a high yield for earning passive income from dividends.

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…

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.

AT&T Latin America provides mobile services in Mexico to consumers and businesses. Also Vrio’s pay-TV services across South America and the Caribbean.

Revenue Share By Business Unit

The chart below shows each business unit’s share of revenues. Clearly, the communications business unit is the dominant player in this business.

Chart 1: AT&T Revenue By Segment

AT&T Dividend Stock Analysis

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.

How Much Is AT&T’s Dividend?

AT&T’s current dividend rate is $2.08 per share.

This rate is the 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.

What Is The AT&T Dividend Yield?

The current dividend payout provides a 7.1% AT&T stock dividend yield. Based on the recent stock price.

I checked in with the Simply Investing Report. It tells me AT&T’s yield is currently higher than its average over the past 20 years.

Certainly, this is a high dividend yield. No matter how you look at it.

And may indicate that AT&T stock is undervalued. On the other hand, it could indicate the dividend is at 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 for the latest dividend payment information.

AT&T Dividend History

AT&T has an impressive consecutive annual dividend increase streak. For example, the company has increased its dividend on an annual basis dating back to 1985.

AT&T Is A Dividend Aristocrat

This fact makes AT&T a Dividend Aristocrat. But the record may be in jeopardy. More on that in a minute.

First, 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 growth rate of dividend payments from AT&T is for you.

The company’s dividend has grown slowly but consistently as shown in the table below.

Table 1: AT&T Compound Annual Dividend Growth Rate

1 Year3 Years5 Years7 Years
1.96%2.00%2.04%2.09%

Does AT&T State Its Dividend Policy?

In a press release not too long ago, 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.

I will use this information a little later in the AT&T stock analysis. But one more important point about getting timely dividend payments from AT&T.

Last AT&T Dividend Increase

Each year, AT&T typically announces a dividend increase in December. But last year, they elected not to do so.

This is 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, it conflicts with the company’s statement about modest annual increases. And jeopardizes the company’s status as a Dividend Aristocrat.

To continue as a Dividend Aristocrat. Management must increase the quarterly dividend payment 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.

For AT&T? My best guess is they will meet this deadline. They won’t want to lose Aristocrat status if they can help it.

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

AT&T 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.

Chart 2: AT&T 7-Year Revenue Trend

AT&T revenue history

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

And, have 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 Earnings

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.

Chart 3: AT&T 7-Year Earnings & Dividend Trend

AT&T dividend payout ratio based on earnings

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.  For comparison purposes, I have adjusted the 2017 earnings in the chart above to eliminate this tax charge.

Also, I adjusted 2020 earnings. For non-cash impairment write-offs related to the video business.

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 making 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.

Chart 3: AT&T Dividends And Cash Flow

T stock: free cash flow analysis

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”.

Table 2: 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 1 to 1.

Although absolute debt levels are very high. Debt to equity reflects a fairly 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 on these factors, I conclude that AT&T’s dividend is safe from a reduction in the foreseeable future.

And, I am comfortable holding AT&T in my dividend stock portfolio. Mainly because of the reasonable percentage of free cash flow it pays out in dividends.

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. That would not make me happy.

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)

I believe dividend growth is going to stay very low for years to come. So, I’m going to forecast a 1-2% annual AT&T dividend growth.

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

AT&T Stock Analysis: Valuation

Let’s judge value in several ways:

  • AT&T Dividend Discount Model
  • Morningstar fair value analysis of AT&T stock
  • Personal Finance investment newsletter buy target
  • Utility Forecaster investment newsletter buy target
  • Simply Investing Report

AT&T Dividend Discount Model

I use a single-stage dividend discount model. Also known as the Gordon Growth Model. It considers several factors I have discussed thus far.

  • The current annual dividend payment
  • Projected dividend growth
  • Plus, my desired annual return on investment – 9%

Using these assumptions, the dividend discount model calculates the fair value of AT&T stock at $28 per share.

Morningstar Fair Value Analysis Of AT&T Stock

The stock analysis firm Morningstar believes AT&T stock is fairly valued at $36 per share.

I have used Morningstar for many years. And admire their high-quality investment research.

Personal Finance Investment Newsletter

The longtime investment newsletter Personal Finance places a buy target on AT&T stock at $33 per share.

Utility Forecaster Investment Newsletter

Utility Forecaster, another of my favorite investment resources, has a buy target on AT&T stock of $31 per share.

Simple Investing Report

The Simply Investing Report used the following metrics to assess the value of a stock.

  • Stock price to earnings ratio
  • Current dividend yield: must be higher than the average over the past 20 years
  • Stock price to book ratio

Based on the Simply Investing Report criteria, AT&T stock is undervalued.

So, How Much Is AT&T Stock Worth?

We have looked at a number of valuation methods that suggest a range of values for AT&T stock. What do they tell us?

AT&T stock appears to be undervalued at recent prices. The methods used and resources referenced make me conclude that AT&T stock is worth somewhere in the low $30 per share range.

AT&T Stock Analysis Wrap Up

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

  • Attractive AT&T dividend yield
  • Investment-grade credit ratings and a reasonable debt to equity ratio
  • Reasonable dividend safety based on free cash flow generation
  • New questions brought about by the missed dividend increase last year
  • A slightly undervalued stock at recent price levels

I will continue to hold my shares. But due to the size of the current position in AT&T stock, I do not intend to purchase more at this time.

And 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.

Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.

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

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