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AT&T's Exceptional Dividend Safety Just Got Better

Mar. 07, 2018 12:10 PM ETAT&T Inc. (T)88 Comments


  • T's FCF guidance for this year is very bullish.
  • T is getting a permanent reset higher for its FCF and that's great news on a couple of fronts.
  • T doesn't need TWX as much any longer and it could potentially pay down some debt as well.
  • It also opens the possibility for larger dividend raises going forward.

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I’ve been pounding the table for AT&T (NYSE:T) for some time now as I’ve found the stock to be attractive on a valuation basis, but obviously for the dividend as well. The company’s dividend prospects have improved markedly in the past couple of years, and with strong FCF guidance from this past year’s Q4 report, it looks like the trend of improving its dividend coverage is going to continue. In this article, using data from company filings, I’ll take a look at AT&T’s all-important dividend financing and how its recent FCF guidance is bullish for those of us who love its dividend.

T's dividend financing continues to improve

Let’s begin with a look at T’s dividend expenditures and FCF going back to 2013 and including guidance for this year that was present in its Q4 report.

Source: author’s chart using data from company filings

We can see that T’s FCF has been pretty steadily moving higher during this period and that has helped immensely with the growing burden of the dividend. The dividend has grown from $9.7B in 2013 to my projection of $12.3B for 2018, but FCF has been more than up to the task. That number has moved from $13.6B in 2013 to T’s guidance of $21B for 2018, greatly increasing the gap between the company’s cash need for the dividend and its ability to produce that cash.

Tax reform provides a permanent reset higher

T’s FCF growth for this year is due largely to tax reform benefits it will accrue starting in 2018. Capex has been pretty steady for years at around $21B so operating cash flow has really been the wild card. For this year, operating cash flow is going to see a ~$3B benefit from the lower tax rate and thus FCF is going to move up by

This article was written by

Josh Arnold profile picture
Leader of Timely Trader
Maximize your gains through live trading with alerts ahead of market trends

I've been covering financial markets for ten years, using a combination of technical and fundamental analysis to identify potential winners (and losers) early, particularly when it comes to growth stocks.

Analyst’s Disclosure: I am/we are long T. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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