Last update on 2024-06-27

AT&T (T) - Dividend Analysis (Final Score: 5/8)

Explore the performance and stability of AT&T's (T) dividend policy, evaluated on an 8-criteria scoring system. Final Dividend Score: 5/8.

Short Analysis - Dividend Score: 5

We're running AT&T (T) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is the ratio of a company's annual dividend compared to its stock price, reflecting the return on investment.

AT&T's dividend yield of 6.6269% is nearly double the industry average of 3.56%, which may appeal to income-seeking investors. Over the past 20 years, AT&T's dividend yield has generally stayed high, peaking at 11.1948% in 2021. Such high yields can be attractive, but the declining trend from 2021 to 2023 could be a warning sign. Stock prices for AT&T have also decreased, from $27 in 2006 to $16.78 in 2023, potentially reflecting market concerns. Sustained high yields coupled with a declining stock price might suggest issues with future growth prospects.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate is the annualized percentage rate of growth of a company's dividend payments over a period. A higher Dividend Growth Rate often indicates strong earnings growth and a potential increase in share prices.

The Dividend Growth Rate for AT&T (T) over the last 20 years has experienced significant fluctuations. For instance, years like 2004 and 2023 show negative growth rates of -8.5464% and -17.873% respectively, indicating periods of reduced dividend payments. Conversely, years like 2008 have a growth rate as high as 12.6761%, showing significant increases. However, scrutinizing the overall Dividend Ratio shows incremental growth rather than consistent substantial increases. With an average dividend ratio around 0.914, AT&T falls short of the 5% benchmark. Hence, this trend is not favorable for consistently outperforming the market or ensuring investors of persistent earnings growth.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio measures the percentage of earnings a company pays to shareholders in dividends. A lower ratio suggests a higher ability to sustain dividends.

The Average Payout Ratio of AT&T (T) over the last 20 years stands at approximately 61.3%, coming in below the 65% threshold. This is indicative of a reasonably conservative dividend policy, which is good for sustainability. However, reviewing individual yearly ratios reveals significant volatility with some years (e.g., 2011 and 2020) showing payout ratios well above 100%, indicating earnings were insufficient to cover dividends in those years. This mixed trend suggests periods of both solid and strained financial health.

Dividends Well Covered by Earnings?

Evaluating if dividends are well covered by the earnings involves looking at the coverage ratio, which is calculated by dividing the earnings per share (EPS) by the dividend per share. This criterion is important because a low coverage ratio may indicate that the company is paying out more than it earns, which could be unsustainable.

In order to assess the dividend coverage for AT&T (T), we review the data on Earnings Per Share (EPS) and Dividend Per Share (DPS) from 2003 to 2023. Sustainable dividend payments typically see a dividend coverage ratio of at least 1, implying that the company earns enough to cover its dividend payouts comfortably. - Between 2003 and 2023, AT&T displayed notable fluctuations in its EPS, ranging from a high of 4.7631 in 2017 to a low of -1.1895 in 2020. - The Dividend Per Share (DPS) increased consistently from 1.369 in 2003 to a peak of 2.08 from 2016 to 2021, followed by significant cuts in 2022 and 2023. - The coverage ratio also varied considerably. Every year from 2008 to 2013 and from 2018 to 2021, AT&T managed an EPS below the DPS. This implies periods of strain where earnings have been insufficient without additional support (e.g., borrowing). - Particularly troubling is the year 2010 when coverage was only 0.502x and 2020's -2.876 ratio. On certain years like 2011 and 2021, AT&T showed robust coverage with a ratio of 2.594x and 1.0739x, respectively. While AT&T mitigated risks in 2022 and 2023 by reducing its DPS significantly (from 2.08 to about 1.12-1.35), this action likely indicates sustainability concerns. Considering the erratic coverage ratios over the years and recent dividend cuts, the trend indicates underlying challenges. Hence, the trajectory is worrying and needs prudent financial management for sustainability.

Dividends Well Covered by Cash Flow?

Explanation on why it is important that the dividends are well covered by cash flow.

Dividends being well covered by cash flow is critical as it indicates the company's ability to sustain its dividend payouts from its operational cash flows without compromising its financial health. A strong coverage ratio, ideally over 1, signals that the company generates sufficient free cash flow to support its dividends, which is seen positively by investors.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends indicate the company's reliable cash flow and commitment to returning value to shareholders. This stability can be a major factor for income-seeking investors.

Evaluating AT&T's dividend per share (DPS) over the last 20 years, it is evident that the company's payouts have shown a general upward trajectory, demonstrating a consistent approach to dividend payments. For example, from 2003 to 2019, DPS has risen from $1.369 to $2.08, evidencing steady growth. However, in 2021, the DPS remained flat at $2.08, showing no increase. The most significant change occurred in 2022 and 2023, where the DPS dropped from $2.08 in 2021 to $1.354 in 2022 and then further to $1.112 in 2023. The cut from $2.08 to $1.112 represents almost a 50% decrease, which is considerably beyond the 20% threshold indicating instability. This significant drop can raise concerns regarding the company's future cash flow stability and commitment to maintaining dividend payouts. Therefore, despite previous stability, the recent trend of substantial dividend reduction is a negative signal for income-seeking investors who prioritize reliable and stable dividends.

Dividends Paid for Over 25 Years?

Assessing whether AT&T has paid dividends consistently for over 25 years and understanding the trend in dividend payouts.

AT&T has paid dividends consistently for the past 25 years, which is a positive indicator of financial stability and commitment to returning value to shareholders. Over the years, the dividend per share generally shows an increasing trend. From $0.92 in 1998, it rose steadily, reaching a peak of $2.08 from 2018 to 2020. However, a noticeable decline occurred in 2022 and 2023, with dividends dropping to $1.354 and $1.112, respectively. This reduction could be attributed to several factors such as company strategy shifts, economic conditions, or significant investments. The general trend suggests a commitment to maintaining dividends but recent declines highlight potential areas of concern. Overall, a long history of dividend payments is reassuring for investors, although they should stay informed about the reasons behind the recent decreases.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases

AT&T's stock repurchase strategy over the past 20 years demonstrates fluctuations. The number of shares has varied significantly, increasing from around 3.3 billion shares in 2003 to over 7.1 billion shares in recent years. The years where AT&T repurchased stocks include 2004, 2008, 2009, 2012, 2013, 2014, 2017, 2020, and 2022, making a total of 9 out of 21 years with stock buybacks with an average repurchase frequency rate of about 4.61. This indicates an inconsistent buyback strategy that may affect its dividend sustainability and shareholder returns adversely.