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AT&T: High-Yield Dividend Stock for the Long Term

AT&T: High-Yield Dividend Stock for the Long Term
(Alexey Novikov/Dreamstime)

By Friday, 28 June 2019 09:47 AM Current | Bio | Archive

Income investors looking for quality dividend stocks to buy and hold for the long-term should focus on stocks with a combination of yield, growth, and sustainability. The search for the best dividend stocks goes far beyond yield alone. Investors also need to make sure they are buying high-quality businesses with durable competitive advantages and growth potential.

Not all high-yield stocks will be successful investments over time. In some cases, high-yield stocks are in deteriorating financial condition, which forces them to cut their dividends. A dividend cut is usually followed by a large drop in the stock price. As a result, investors want to avoid dividend cuts as much as possible.

We believe AT&T Inc. (T) is a high-quality dividend stock. It combines a high dividend yield with a long history of increasing its dividend, and strong dividend coverage. For these reasons, AT&T stock is a buy.

AT&T: No Longer Just A Steady Telecom

AT&T is a large telecommunications company with over 100 million customers in the U.S. and a significant presence in Latin America. It provides a wide range of telecom services, including wireless, broadband, and television through its cable operations and its DirectTV satellite brand. AT&T generates more than $170 billion in annual revenue.

As a telecom giant, AT&T has not been a high-growth company in recent years. Instead, it has been a cash cow that rewards shareholders with a high dividend yield and annual dividend increases. AT&T has a dividend yield above 6% and the company is a Dividend Aristocrat, having raised its dividend for 35 consecutive years.

However, AT&T’s days as a slow-and-steady telecom are about to end, as there is much higher growth in store for the company. AT&T made a huge move into a new business with the $85 billion acquisition of Time Warner Inc., which instantly turned AT&T into a giant in content. Time Warner owned multiple media brands, including TNT, TBS, CNN, and HBO. Time Warner also operates a movie studio and has sports rights across the NFL, NBA, MLB, and NCAA.

The Time Warner acquisition has already jump-started AT&T’s growth. In late April, AT&T reported (4/24/19) financial results for the 2019 first quarter. Revenue of $44.8 billion increased 18% for the first quarter, primarily driven by the Time Warner acquisition. Adjusted earnings-per-share of $0.86 rose 1.2% from the same quarter a year ago. AT&T’s core mobility segment grew revenue by 2.9% for the quarter, thanks to 179,000 net postpaid smartphone customer additions during the quarter.

Having Time Warner gives AT&T exposure to a new set of growth segments, and as a telecom provider, also gives AT&T a hedge against rising content costs. As consumers increasingly “cut the cord” and utilize new technologies for content delivery, it is more important than ever for telecoms to produce their own content to retain their competitive advantages.

Final Thoughts

The future is bright for AT&T. The company will generate strong growth in the years ahead thanks to the Time Warner acquisition. AT&T generates billions of free cash flow each year, which will allow the company to repay debt from the acquisition and also continue to reward shareholders with a high dividend.

AT&T has a dividend yield above 6%, and should keep raising its dividend each year moving forward. As a result, AT&T stock is a buy for income investors.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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The future is bright for AT&T. The company will generate strong growth in the years ahead thanks to the Time Warner acquisition.
at&t, high, yield, dividend, stock
Friday, 28 June 2019 09:47 AM
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