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Demystifying The Sustainability Of AT&T's Dividend

Jun. 05, 2023 9:59 AM ETAT&T Inc. (T)62 Comments
Roberts Berzins, CFA profile picture
Roberts Berzins, CFA


  • AT&T's 7.3% dividend yield is deemed safe with a low probability of being revised downwards, making it attractive for dividend-seeking investors.
  • The company faces stagnant EBITDA growth and increased competition from Verizon, T-Mobile, and Amazon, limiting its potential for price appreciation.
  • AT&T should be viewed as a pure dividend income stock with limited capital appreciation potential, and there may be better alternatives for investors seeking similar yields with more favorable growth outlooks.

Cell phone or mobile service towers


Recently, there has been a lot of chatter around AT&T Inc. (NYSE:T) dividend driven by the consistently plummeting share price and narrowing margin of safety due to poor dividend coverage.

In the trailing three year period, T has diverged

This article was written by

Roberts Berzins, CFA profile picture

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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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Comments (62)

falconetti aanthony profile picture
I predict T will be acquired by AMazon or another carrier at some point..the only reason it has not happened already is the debt that T is carrying.
And yes, the dividend will be cut AGAIN..because competition is gonna continue to erode T market share...
Spectrum ( for ex.) gives me 2 phones service for $30 month...I was paying $70 with AT&T for 1 ph for yrs...

What AT&T needs to do is have massive layoff of mid-upper mgmt..cut div by 50% (to .60 annually) and retire as much debt as possible...all this just to keep from going BK down the road.
You are totally missing the point. The facts are:
1. The company has $137 billion in debt.
2. The stock has plunged from $30 four years ago to $15 today, more than wiping out the dividend income you received.
3. The company is facing large capital investment needs to roll out 5G.
4. The company is facing zero growth because virtually everybody who wants a cell phone already has one.
With all that in mind, is this really the one of the best stock ideas you could find? When deciding which stock to write your Seeking Alpha article about, was this really the best one you could pick? I don't think so.
Roberts Berzins, CFA profile picture
@Ultrabase Please read the conclusion section, and the revisite your argumentation. In a nutshell, I don't think T is a good stock to buy, and I've not included that into my portfolio.
@Ultrabase Dear @Ultrabase you did not read the conclusion... On top of that this article - when read to the end - helps individuals to understand the real situation of stocks with various opinions. As 80% of the other articles about $T on SA are Buy or Strong Buy, I appreciate to have a more nuanced opinion like the one in this article!
what good is a dividend if you lose it plus more to capital loss? HELLO.
Roberts Berzins, CFA profile picture
@motto5448 the chances are very slim of one loosing further on the dividend side.
Eileen Dover profile picture
@Roberts Berzins, CFA What is loosing? Do you mean losing?
@Roberts Berzins, CFA Nothing surprises with T. Subpar management is the moral of this story.
jerryjc5 profile picture
"ATT dividend yield is deemed safe with a low probability of being revised downwards"
Where have I heard that before...
Eileen Dover profile picture
@jerryjc5 We read that just before the last cut.
If you are holding this stock for the dividend when you can get 5% in a money market account I am laughing and can't help you!!!! OMG.
@motto5448 Ummm, T's dividend is over 7%! Nuff said
closeups profile picture
@aochamp can still go up without the increase. In other words, stock can go down and you get more percentage. T is not reliable investment. Today, you get 7% tomorrow it will be 8% while taking capital loss. SELL -T
@aochamp Dividend vs. possible/likely stock price degradation is the risk reward issue....and the drop in T's equity value continues to be the issue, likely much more that the 2% delta between dividend and MM rates. T management is the deciding factor and they don't inspire.
Old Professor profile picture
Workmanlike analysis and sensible summary recommendation on AT&T.
Besides the dividend, one can make additional income on T through call options. You won't get much appreciation on the stock, but you can get a good income stream at less risk than many other choices.
closeups profile picture
@tsk9653 and wait for the stock go down. :(
Thank you for your article. Would you please share a couple of the better options out there?
Roberts Berzins, CFA profile picture
@jsbrown1209 it depends on your risk profile (willingness & ability to take risk). In the context of my portfolio, I prefer to allocate into stocks, which provide relatively attractive yield with some growth component attached. For example, SPG, O, CUZ.
I wouldn't mind them cutting the dividend entirely, but only if all of that is applied to the debt. In 15 years it would be just about or at zero at that point. With all the interest they would be saving just bringing it down by half would once again make this company a FCF cash cow.
@Richard Ba Why would you want zero debt for a corporation?
Eileen Dover profile picture
@Richard Ba I may not have 15 more good years to wait and have it sitting on my watch list.
@Golfortennis Something something, peter lynch and about a company with no debt and large bank is hard to topple. Also, allows for more risk-taking that a company under a large debt load cannot afford to do.
Murad Shawar profile picture
I think T/VZ should cut the dividend by half and use the proceeds for debt reduction for a good 5 years plus until debt is under control .
How can competition from vz tmus increase..???
westelk profile picture
A while back T said they planned the dividend to be 4.5-5%. Just think of the small dent they could make in the debt by cutting dividends to that level.
Read the above with as written with dripping sarcasm.
I've been buying. The market seems to be overly negative about T right now due to past mistakes. At these dividend yields, I don't need any capital appreciation. T long term will be fine, because telecommunications are only going to become more important. In other words, the stock isn't cheap because they have a product people no longer want or need. It's cheap because of stupidity of management for years. I don't expect them to become geniuses, but they seem to now be going in the right direction roughly.
Roberts Berzins, CFA profile picture
@annoyedinvestor in an world, where our wealth is not unlimited, I would seriously question the merit of holding T. If an only argument for longin T is dividend yield, then there are way better options out there.
@Roberts Berzins, CFA It's less than 1% of my portfolio. Most of my money is in ETFs like SCHD. But I don't see why T is so bad at these prices not to own some.
Good points. Revenue pressure means dividend and interest rate coverage pressure.

A good prediction how this evolves is to look at other firms where management had failed to deliver and they then reach for obfuscation tactics to mask the incompetence. Namely spin offs and restructurings to supposedly unlock value but really to buy time and cloud realities. Firms like Baxter, Mondelez, GE, and others have used this CEO sparing tactic to give the CEO to hit the exits in a smoke cloud with still a huge comp package.

Look for this from Stankey. A wireless divestiture and then two lousy firms with low returns vs one.
@San Marzano Why is Stankey and the board still there and getting paid if his performance is so abysmal?
T will never fully recover from the constant blunders of the past that have left the company with massive debt exceeding 140 billion dollars in a Cap X environment.
Any gains from wireless or fiber merely offset the loses from legacy land lines offering modest growth of 1-2% at best. The company once a FCF machine struggles to eek out 16 million in FCF of which half goes to a dividend that is 50% of what it once was with little or no chance for growth. The 7-8 billion remaining leaves no opportunity for stock buybacks and makes a small dent in the enormous debt. The high yield is merely a function of a stock price that just keeps falling lower and lower.
“$2 billion in preferred equity securities to be issued by AT&T Mobility II, a wholly owned subsidiary of AT&T “

This can’t be a positive for T ?
Roberts Berzins, CFA profile picture
@notre It really depends on the FCF that is generated by this subsidiary. Plus, one has to also factor in the incremental cash flows stemming from these CapEx proceeds.
Joe_G profile picture
T will spend years undoing the damage to its balance sheet inflicted by the previous CEO's ill-conceived empire building.

The dividend may be safe from further cuts (for a while, at least) that doesn't mean it's the best place to deploy new capital. You can get similar high dividend yields from plenty of better companies, such as EPD, CCI, DOC, ENB, or VZ.
Roberts Berzins, CFA profile picture
@Joe_G I agree, there are better alternatives out there - for both value and dividend seeking investors.
Oldstockguru profile picture
@Joe_G I agree with you Joe, and hold 3 of the stocks you listed in my dividend portfolio, also own a lot of VZ that came out of the breakup of the Bell System in 1984.
rosestanvt profile picture
@Roberts Berzins, CFA
You keep talking about better high yield alternatives but refrain from naming any. Is there to be a future article?
The article concludes, "... T should be viewed as a pure income stock ... ."

That's pretty much how I've come to see it.

Retired income investor (long)
Oldstockguru profile picture
Long AT&T for almost 73 years, and buying more T & VZ every week, using all house money. I returned from the Korean war in 1951 and purchased my first shares with my MOP money and used the miraculous power of compound interest just like Warren Buffett did with coke. When the Bell system split into eight companies in 1984 I received 7 shares of each of the 7 new companies for every 100 shares of AT&T I owned at that time and retired. I still have every company that is still in business from that split. The really big money is not made in the buying and selling, it's made in the waiting and holding & using compound interest on stocks that pay a good dividend!
@Oldstockguru Thank you for sharing a great story! I love these long long term investors. Your cost basis is pennies on the dollar my guess. Thank for your service as well. Enjoy your dividends and retirement!
Roberts Berzins, CFA profile picture
@Oldstockguru 73 years..., wow. But I hope you have some degree of diversification in your portfolio:)
Roberts Berzins, CFA profile picture
@Valuestocks007 no problem, thanks for the comment!
wam350 profile picture
Holding at a lose (for now ) and enjoying the div's.
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