Dividend stocks are appealing investments for many reasons. First, regular dividend payments are real cash that investors can spend on anything they want. Dividends can be used to help pay for various expenses, or investors can reinvest their dividends into more shares of stock. In turn, this results in even more dividends, which can be used to buy even more shares of stock over time.
In addition, dividends can boost returns during down markets. The past 10 years have been characterized by a nearly uninterrupted bull market. But another recession could happen at any time. Dividends help protect portfolios when stock prices are falling.
AT&T (T) has a 6% yield, and will pay its next quarterly dividend on November 1st, with an ex-dividend date of October 9th. AT&T’s dividend is highly secure, as the company generates more than enough cash flow to sustain the dividend payout. And, AT&T’s major acquisitions will pave the way for annual dividend increases in the years ahead. AT&T is an attractive high-yield stock for income investors.
Important Dividend Dates, Explained
There are a number of important dates that income investors should be familiar with, all pertaining to the scheduling of dividend payments. The first important date to know is the declaration date. This is the date the company announces its upcoming dividend payment. The next important date to know is the record date, which is the date the company checks its shareholder records to see who is eligible to receive the dividend. This date is not nearly as important as the ex-dividend date. Investors must purchase a stock before the ex-dividend date in order to receive the upcoming dividend. Lastly, the payment date is the date on which the company pays the dividend to shareholders.
Shareholders can receive their dividends in a number of ways. The dividend can be mailed, wired to a bank account, or deposited into a brokerage account. Some companies offer shareholders a Dividend Reinvestment Plan—or DRIP—which allows investors to use dividends to purchase more shares. Dividend reinvestment helps unleash the power of compounding interest, whereby reinvested dividends result in more shares, which bring in more dividends, and so on.
In this case, investors must own AT&T shares before October 9th to receive the dividend. Investors who buy shares of AT&T before October 9th will receive the upcoming dividend of $0.50 per share. On an annualized basis, AT&T currently pays a dividend of $2.00 per share. Based on the recent price of $33.45 per share, AT&T stock has a dividend yield of approximately 6.0%.
When it comes to high-yield stocks, investors should perform thorough due diligence to make sure the dividend is sustainable. Sometimes stocks have high dividend yields because their share prices have collapsed, which could be an indication that the business is deteriorating. Fortunately, AT&T’s high dividend yield is because the company can afford to distribute a high level of cash flow to its shareholders.
Dialing Up Huge Cash Flow
Stocks with high dividend yields of 6%+ are rare. In fact, the average dividend yield of the S&P 500 Index is under 2% currently. This means AT&T pays its investors more than three times as much as the average dividend stock in the S&P 500. Even rarer is that AT&T is a Dividend Aristocrat, a select group of just 53 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. AT&T has increased its dividend each year for more than 30 years in a row.
AT&T’s combination of high dividend yield and long history of dividend growth are truly unique qualities that separate AT&T from the pack. The reason for AT&T’s excellent dividend characteristics is largely due to the company’s highly profitable business model. AT&T is one of the two major U.S. wireless carriers, along with Verizon. These two companies dominate the market, which provides a tremendous competitive advantage. It would be extremely costly for another carrier to build out a network large enough to compete with AT&T, which helps insulate the company from competitive threats.
Outside of wireless, AT&T has a broad range of products and services, including cable and satellite television, and Internet service. In all, AT&T serves more than 100 million U.S. consumers, and another 3 million business customers. AT&T also has a huge presence in Latin America, where it provides pay-TV services across 11 countries and territories in Latin America and the Caribbean.
AT&T is expanding its reach even further, now that the massive $81 billion acquisition of Time Warner, Inc. has officially closed. Going forward, AT&T will still have its massive telecom businesses, while adding a huge content business into its portfolio.
Source: Investor Relations
Time Warner has a number of large media content businesses, including cable networks like TNT, TBS, CNN, premium television network HBO, sports rights across the NFL, NBA, MLB, and NCAA, as well as the Warner Bros. movie studio. In the second quarter, AT&T generated revenue of $39 billion. While revenue declined by 2% from the same quarter last year, adjusted earnings-per-share increased by 15% and operating cash flow increased 18% for the quarter. AT&T has performed well to start 2018, and the Time Warner acquisition will help boost future growth.
AT&T’s various acquisitions will also pave the way for an opportunity in advertising. AT&T recently announced it will acquire AppNexus for approximately $1.6 billion Separately, AT&T will acquire Otter Media, which has a number of media properties including Ellation, an online subscription video service provider. These acquisitions are a perfect complement to the Time Warner deal. Now that AT&T will be a content giant, it makes perfect sense to boost its advertising platform.
The best dividend stocks provide investors with an attractive dividend yield, and can also raise their dividends each year thanks to their strong business models. This requires a company have durable competitive advantages, and growth potential over the long-term. AT&T is a good example of a high-quality dividend stock. Not only does it offer a high yield of 6%, but it has also increased its dividend for over 30 years in a row. This makes it a highly appealing stock for investors who desire dividend income, such as retirees.