AT&T’s High-Yield Dividend: Sustainable or Suspicious?

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Investors often approach high-yield dividend stocks with caution, and AT&T (NYSE: T) is no exception. With a dividend yield of 6.6%, significantly surpassing the S&P 500 average of 1.4%, doubts about the sustainability of AT&T’s dividend linger amidst a 14% stock price decline over the past year.

Assessing the safety of a dividend goes beyond merely its yield. While lofty yields can signal potential instability, contextual factors play a crucial role. AT&T’s recent financial performance offers insight: in the fourth quarter of 2023, revenue grew modestly by 2.2% year-over-year to over $32 billion, accompanied by an operating income turnaround from loss to a $5.3 billion profit. Moreover, the company’s free cash flow for the year, totaling $16.8 billion, exceeded its dividend payout of $8.1 billion, with a conservative payout ratio of less than 60%.

However, AT&T’s substantial long-term debt, standing at $127.9 billion, remains a concern for investors. Despite efforts, the company hasn’t significantly reduced its debt load, with its debt-to-equity ratio trending higher than historical norms.