AT&T (NYSE: T) has been making waves in the investment world with its very attractive dividend yield of 5%, which is several times higher than the average S&P 500 yield of less than 1.5%. But with higher yields come higher risk profiles, which is something investors should keep in mind.
Despite its higher risk profile, AT&T’s dividend is becoming increasingly safer each quarter, as evidenced by the company’s recent third-quarter earnings report. The report showed continued improvement in several key financial metrics, indicating a positive trajectory for the telecom giant.
While AT&T reported mixed third-quarter results, with revenue and adjusted earnings per share slightly down compared to the year-ago period, there were several positives to take away. Adjusted EBITDA rose, driven by strong performance in the mobility and fiber businesses. The company added over 200,000 fiber customers for the 19th consecutive quarter and continues to grow its mobility business consistently.
Furthermore, AT&T has been increasing its free cash flow and reducing its leverage ratio, indicating a stronger financial position. This improvement in financial metrics should continue in the coming quarters, with the company aiming to reach its target leverage ratio in the first half of next year.
Looking ahead, AT&T’s balance sheet is set to improve further with the sale of its remaining stake in DIRECTV, which will bring in additional cash payments to strengthen its financial position. This, coupled with the company’s strategy of reducing debt and growing free cash flow, could enable AT&T to start increasing its dividend again in the future.
While AT&T may currently lag behind Verizon in dividend payouts, the company’s strategic focus on debt reduction and portfolio growth is positioning it for long-term success. CEO John Stankey’s confidence in the company’s ability to deliver improving results bodes well for investors seeking a stable income stream.
For those considering investing in AT&T, it’s important to weigh the potential returns against other investment opportunities. The Motley Fool Stock Advisor team has identified what they believe are the 10 best stocks for investors to buy now, offering insights into stocks that could produce significant returns in the coming years.
AT&T’s high-yielding dividend is becoming increasingly secure, making it a compelling option for income-focused investors. As the company continues to strengthen its financial position and deliver positive results, it could be well-positioned to reward shareholders through dividend increases and share repurchases in the future.