Is AT&T's Dividend Finally Safe Again? Here's My Verdict.
Key Points
AT&T's financial picture has improved over the past few years.
It expects its free cash flow to continue growing through at least 2028.
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I've had concerns about AT&T's (NYSE: T) dividend ever since it slashed its payout in 2022 following the spinoff of its media assets to create Warner Bros. Discovery. However, I honestly think that the dividend is finally safe again. The telecom giant's financial profile has improved significantly over the past few years, while it expects to deliver healthy financial growth through at least 2028.
Here's why I think AT&T's more than 4%-yielding dividend is finally safe again.
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From suspect to safe
AT&T slashed its dividend nearly in half in early 2022 to retain more cash to reinvest in the business and repay debt following the spin-off of its media assets. It took a while for that strategy to deliver results. Its leverage ratio was still elevated at the end of 2023, at 3.0 times, above its 2.5-times target range. As a result, it didn't have any excess free cash flow after paying dividends to repurchase shares since it was redirecting all of it toward strengthening its balance sheet.
Fast forward a few more years, and AT&T is in a much better financial position. Its leverage ratio has fallen to a more comfortable level (2.5 times at the end of 2025 and 2.7 times at the end of the most recent quarter). That's giving it the flexibility to return additional cash to investors after its $2 billion quarterly dividend payment. It has repurchased $5 billion of its shares through the first half of this year.
Its dividend should grow even safer over the next few years. AT&T expects to generate more than $18 billion in free cash flow after capital expenditures this year, up from $16.6 billion last year. It sees free cash flow rising over $19 billion next year and topping $21 billion in 2028. Meanwhile, continued share repurchases are steadily reducing its share count and therefore its total dividend outlay each year.
My only issue with AT&T is that it hasn't increased its dividend. So, while I think the dividend is finally safe, I'd like to see the company start growing it again; otherwise, it's not much better than owning a safe bond right now.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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