Is AT&T’s 7.5% Dividend Still Safe?

Telecom giant AT&T (NYSE:T) released its latest quarterly results last week. And its revenue of $42.3 billion for the period was down 5.2% from the prior-year period. The company blamed the coronavirus pandemic for the worse results, as there was less international roaming due to less traveling in the world.

Its net income of $2.8 billion was also down 24% from $3.7 billion in profit a year ago.

However, the good news for dividend investors is that the company’s still profitable and generating free cash flow – which is crucial to ensure that payouts remain intact. AT&T reported cash from operating activities of $12.1 billion and free cash flow of $8.3 billion.

For the year, it’s projecting free cash to come in at $26 billion or more. AT&T estimates that its payout ratio will be “in the high 50s%.”

That’s a very manageable payout ratio and should give investors confidence that the company’s current dividend payments are safe.

Shares of AT&T are down 29% this year and that’s pushed its dividend yield up. It’s currently paying its shareholders a quarterly dividend of $0.52, which on an annual basis yields 7.5%. That’s a great payout and on a $10,000 investment it would generate $750 in annual income for your portfolio.

And what’s even better is that with AT&T’s stock trading less than two dollars from its 52-week low, this could be a great opportunity to buy it at a low price, potentially setting yourself up for some strong capital gains.

The company only recently launched HBO Max and in the earnings release stated that with 38 million domestic HBO and HBO Max subscribers, it’s already ahead of the 36 million subscribers it was targeting by the end of the year. As HBO Max continues picking up steam, it may only be a matter of time before the stock takes off, meaning that this high dividend yield may not last for long.