AT&T: Top-Yielding Dividend Aristocrat
06/27/2017 2:54 am EST
AT&T (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, 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.