Actionable insights straight to your inbox

Equities logo

AT&T: Top-Yielding Dividend Aristocrat

AT&T has increased its dividend payments for 33 consecutive years.

AT&T is currently the only Dividend Aristocrat with a yield of 5%; this gives the stock a unique combination of income and safety, asserts Ben Reynolds, income expert, and editor of Sure Dividend Retirement Newsletter.

AT&T (T), the largest domestic telecom company in the United States, can trace its roots back to 1876 when Alexander Graham Bell invented the telephone.

Today, AT&T generates more revenue than any other communications company and employs more than 200,000 individuals in the U.S. alone. AT&T is highly shareholder-friendly and has increased its dividend payments for 33 consecutive years.

AT&T’s pending $85 billion acquisition of Time Warner (TWX) announced last fall continues to proceed as planned. The transaction is expected to be closed by the end of 2017.

AT&T is likely the single safest stock available today with a yield above 5%—the company has a payout ratio in the most recent quarter of 87.5% and 66.2% using GAAP and adjusted earnings, respectively.

AT&T’s long dividend history shows it is capable and willing to raise dividends through a variety of environments. AT&T has very stable cash flows, and its services are a necessity in today’s connected world. This gives AT&T a utility-like business model with substantial barriers to entry.

AT&T’s earnings-per-share have grown at 2.0% a year over the last decade, and its dividend payments have grown at 3.7% per year over the same period.

I expect similar levels of growth going forward.

Growth in the short-term will come from an expected $1 billion in annual synergies from the pending Time Warner acquisition, while long-term growth will come from increasing consumer demand for telecom services. AT&T is likely to deliver inflation-beating dividend growth.

The company’s stock remains firmly in Buy territory, currently trading at 13.6x 2016’s earnings and 13.1x 2017’s expected earnings (using adjusted earnings — the GAAP equivalent is 18.3x 2016’s earnings).

For context, the company’s average price-to-earnings ratio over the past decade is 14.8. Right now is historically a great opportunity to initiate or add to a position in AT&T.

Ben Reynolds is the owner and editor of Sure Dividend, which helps investors systematically invest in high-quality dividend growth stocks.

Subscribe to Ben Reynolds’ Sure Retirement here…

About Founded in 1981, MoneyShow is a privately held financial media company headquartered in Sarasota, Florida. As a global network of investing and trading education, MoneyShow presents an extensive agenda of live and online events that attract over 75,000 investors, traders and financial advisors around the world.

Stories like Charlie Munger’s inspire me. It shows why you must live life as an optimist.