Simplifying for Success: Why AT&T Could Be a Dream Dividend Stock
When it comes to dividend investing, it’s often the simplest businesses that prove to be the most rewarding. Companies that try to do too much can struggle to balance growth with dividend payments, leading to uncertainty for investors. Think Intel and Walgreens Boots Alliance, which have both faced challenges in recent years.
The Power of Focus
AT&T, on the other hand, has been working to streamline its operations and refocus on its core telecom business. The company’s latest move – selling a 70% stake in DirecTV to private equity firm TPG for $7.6 billion – is a significant step in this direction. By shedding a competitive pay-TV business, AT&T can concentrate on what it does best and allocate resources more efficiently.
A Boost to the Balance Sheet
The influx of cash from the sale will also help AT&T strengthen its balance sheet by paying off debt. With $130.6 billion in debt on its books as of June, the company is taking a crucial step towards reducing its financial burden. This move could have a significant impact on investor confidence, particularly in a high-interest-rate environment.
A Dividend Increase on the Horizon?
One key question on investors’ minds is whether AT&T will increase its dividend payout. With a strong cash position and a history of dividend growth, the company may be poised to reward shareholders with a hike. Since spinning off WarnerMedia in 2022, AT&T hasn’t increased its payout, but the sale of DirecTV could provide the catalyst for change.
A Safe and Attractive Yield
Currently, AT&T’s dividend yield stands at around 5.2%, significantly higher than the S&P 500 average of 1.3%. With a payout ratio of 64% and $21 billion in free cash flow over the trailing 12 months, the dividend looks incredibly safe. As interest rates come down, investors may flock to this high-yielding stock, making it an attractive addition to any income-focused portfolio.
A Solid Choice for Income Investors
By simplifying its operations and adding cash to its balance sheet, AT&T has positioned itself as a much safer income investment. With its stock rallying 27% this year, investors have taken notice of the company’s improved prospects. If you’re looking for a reliable dividend payer, AT&T could be an excellent choice to add to your portfolio. And with a potential dividend increase on the horizon, now may be the perfect time to buy and hold.
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