AT&T Stock Is Falling, But Its Dividend Yield Is Getting Even Bigger

The telecommunications giant has long been a favorite among income investors, with a juicy yield and stable cash flows backed by recurring revenue from subscriptions and high barriers to entry in the asset-intensive industry. This year brought a dividend cut when AT&T spun off WarnerMedia, as the company doubled down on investing in its 5G and fiber networks.

AT&T’s current dividend commitment is for around $8 billion annually, or $2 billion a quarter. The company generated $1.4 billion in free cash flow in the second quarter reported on Thursday, far short of the $4.7 billion that analysts were expecting. It also means AT&T’s free cash flow for the quarter didn’t cover its dividend commitment in the period—not what income investors like to see.

Management lowered its 2022 free cash flow guidance to $14 billion, from $16 billion, on Thursday. That would lift AT&T’s dividend payout ratio to about 57% in 2022. The company continues to expect $20 billion in free cash flow in 2023, for a healthier dividend payout ratio of 40%.

The $8 billion in annual dividend payments translates to $1.11 per share annually. At AT&T stock’s roughly $18.60 on Thursday morning, down 9%, that’s an annual dividend yield of 6%. It compares with rival  Verizon Communications
‘ (VZ) dividend yield of 5.4%, and the S&P 500 ’s 1.5%.

It puts AT&T among the top handful of dividend payers in the index. First on the list is fellow telecom company Lumen Technologies (LUMN), with a 9.6% annual yield, followed by tobacco giant Altria Group (MO), whose stock yields 8.5%. Next up are a pair of real estate stocks, Vornado Realty Trust (VNO) and Simon Property Group (SPG), yielding 7.3% and 6.6%, respectively.

AT&T ranks seventh in the S&P 500, followed by Verizon at ninth. Three companies are tied for tenth-highest yield in the index, each with 5.3% annual dividend yields.

Here’s the full list: