AT&T: A Top Aristocrat

10/25/2017 5:00 am EST

Focus: TELECOM

Ben Reynolds

Editor, Sure Dividends

Dividend Aristocrats are stocks that have 25 years or more of dividend increases; telecom giant AT&T (T) — which has increased its dividend for 33 years in a row — also has the highest dividend yield of all aristocrats, observes income expert Ben Reynolds, editor of Sure Dividend.

What makes telecoms like AT&T such impressive dividend stocks, is that they generate huge amounts of free cash flow. They are highly profitable and can increase prices. This provides high levels of cash flow, which telecoms return to shareholders through dividends. AT&T generated $17 billion of free cash flow in 2016.

The telecom industry is changing.. Competition is fierce, which has made it difficult to grow organically. As a result, AT&T’s most significant growth catalyst moving forward, is M&A. The benefits of the DirecTV acquisition are already clear.


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AT&T has reached an agreement to buy Time Warner (TWX) in a massive, $85 billion deal. This will give AT&T cable and premium networks including TNT, TBS, CNN, HBO, and Cinemax. It also owns the Warner Bros. movie studio.

AT&T expects the Time Warner deal to close by the end of the year. Overall, AT&T expects earnings growth in the mid-single digits for 2017. Free cash flow is expected to increase 7% from 2016, which should allow the company to continue increasing its dividend.

One of the most important competitive advantages for AT&T is its network. It has invested billions to develop its network, which helps differentiate it from the competition. AT&T spent more than $140 billion on its network from 2002 to 2016, including spectrum acquisitions.

AT&T has nearly all the qualities income investors should look for. It is highly profitable, generates a lot of cash flow, and pays a secure 5% dividend yield. The lingering issue for AT&T is the heightened level of competition in the wireless industry, which shows no signs of slowing down.

However, AT&T’s long-term future remains bright. It has the scale and financial strength to outlast the competition. New technologies set to roll out next year, such as 5G, should help reestablish AT&T’s competitive position. Overall, AT&T is a high-quality Dividend Aristocrat, and a natural selection for investors seeking high income.

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