AT&T Unlikely to Cut Its Dividend. Here’s Why

Story originally published here.

In 2016, AT&T (T) announced the planned acquisition of Warner Media for USD 108 billion. The acquisition was closed in 2018. Since then at the latest, AT&T has had a huge debt problem that is putting investors to the test. At least the relatively high dividend yield, which has been secured for a long time by the cash flow, has somewhat calmed investors.

AT&T has never been anything other than a dividend investment

Dividends are so immanent to investors in the company because AT&T has never been a growth investment in the last twenty years. It was a good opportunity for investors to generate cash flow. If one looks at the results in terms of price increases and dividend yields over the last 20 years, it becomes very clear that only the latter can be a buying argument.

It is, therefore, all the more important that AT&T at least manages to maintain the dividend, as otherwise, the investment thesis would collapse for many investors.

Read more here to see AT&T's Q1 results and find out what it means for its dividend.

How has AT&T fared in this year's wild market?

Shares are down by a whopping 23.5% in 2020. This Dividend Aristocrat has been beaten up recently for three main reasons: The pandemic's impact on its WarnerMedia division through the cancellation of key sporting events like the March Madness basketball tournament, the continued outflow of subscribers from its DIRECTV subsidiary, and concerns about the overall health of its balance sheet. In the first quarter of 2020, for instance, AT&T exited the three-month period with a total debt load of $185.8 billion. 

Putting all the doom and gloom aside, AT&T remains a rock-steady income play. In the most recent quarter, it raked in $3.9 billion in free cash flow, and its core mobile service continued to perform well, even in this hectic environment. What's more, AT&T sports the second-highest dividend yield (6.83%) among its Dividend Aristocrat peers. During the company's latest conference call, management also noted that supporting the dividend will remain a key priority for the foreseeable future. Therefore, income investors can rest assured that AT&T doesn't anticipate a reduction to its top-notch dividend program anytime soon.