Is AT&T Inc. (NYSE:T) Still A Good Dividend Stock?

October 12, 2017, 09:15 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

AT&T Inc. (NYSE:T) recently announced its third quarter results where the quarterly dividend payout was maintained at $0.49 per share, which represents a 5.02% forward yield. The company’s rising debt levels have led to speculations among dividend growth investors about the safety of AT&T’s current dividend payout.

However, a close look at the company’s history of dividend payouts over the past five years indicates that the company has hiked its quarterly dividend by a penny annually over the stated period. This has led to the company spending a significant portion of its profits on dividend payments given that the company has about 6.14 billion shares.

Despite the higher costs incurred by the company as a result of hiking its dividend payout each year, I strongly believe that the company shall raise its dividend payout by a penny in 2018. The company’s current dividend yield is above 5% given that its stock has been trending downwards since the beginning of the year, which makes the company an attractive dividend growth stock.

Many investors have raised concerns regarding the company’s declining revenues, which many fear might affect the company’s ability to pay dividends. This concern is refuted by the fact that the company has initiated a share buyback program, which has reduced the number of outstanding shares, thus ensuring that expenditure on dividend payouts has not risen linearly.

AT&T is currently undervalued as compared to some of its peers such as Comcast Corporation (NASDAQ:CMCSA) and Verizon Communications Inc. (NYSE:VZ). However, the company’s stock rallied higher in September, which is an indicator that the stock might be ready to reverse its massive downtrend.  

The recent appointment of Makan Delrahim as the antitrust chief at the Department of Justice might spell good news for the approval of AT&T’s deal to acquire Time Warner Inc (NYSE:TWX) for $80 billion. President Donald Trump’s tax reform plan is also likely to favor the company in future.

However, some of the main risks associated with the company include its massive debt burden, fierce competition in various market segments and a Moody’s downgrade. Therefore, the question remains whether AT&T is a good dividend stock at its current price amid the existing market conditions.

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