The Smartest Dividend Stock to Buy With $1,000 Right Now

Key Points

• AT&T's dividend yield is more than three times higher than what the S&P 500 offers.

• Shedding its media and entertainment divisions has allowed the company to refocus on its core telecom business.

• AT&T has paid down more than $30 billion of its debt since 2020.

Regardless of the number of tools and resources available to Wall Street or the average investor, there's no way to predict how a stock's price will move with 100% certainty.

However, one thing that can offer investors consistency is dividend payouts. Dividends don't get the same attention as share price returns, but they can be very valuable when it comes to making money in the stock market.

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If you have $1,000 available to invest, telecom giant AT&T (NYSE: T) is a dividend stock worth considering. It's been on a roll over the past 12 months, up over 50% (as of July 1). That's four times more than the S&P 500's gain during that time and a much appreciated change of direction for a stock that has underperformed the market over the past decade.

You can't go wrong with AT&T's high dividend yield

Despite slashing its dividend by around half in early 2022, AT&T remains a top dividend stock. Its current 3.9% yield is below its average for the past few years but still noticeably higher than the S&P 500 average of around 1.3%.

At current levels, a $1,000 investment in AT&T would pay out about $40 annually in dividends. Reinvest those dividends via a dividend reinvestment plan (DRIP), and your payouts are likely to rise over time.

Data by YCharts.

Investors shouldn't expect AT&T to increase its dividend in the near future (that extra cash will likely be used to pay down debt), but the company's recent financial performance offers hope for eventual payout increases down the line. In the meantime, investors can enjoy the $0.2775 quarterly payout per share.

A refocus has done wonders for AT&T's business

Part of AT&T's recent success can be attributed to its refocus on the core telecom business. In 2022, the company spun off its WarnerMedia entertainment segment in a deal worth more than $40 billion.

Now, AT&T's wireless business is its most profitable, and it's growing. At its latest shareholders meeting, CEO John Stankey said AT&T is the only company offering both 5G and fiber services together at a nationwide scale, with full ownership of the infrastructure behind those services too.

AT&T's fiber network is also the largest in America, reaching over 30 million locations. The goal is to double this to around 60 million by 2030, and the company is pursuing acquisitions to support this effort. It recently struck a deal to acquire Lumen's Mass Markets fiber internet connectivity business for around $5.75 billion.

What makes AT&T a smart stock to buy right now?

For a while, concerns about AT&T's business included its divided business strategy, high debt, and high dividend-payout ratio. Over the past couple of years, these concerns have been largely addressed.

As I mentioned above, it shed its media and entertainment segments. And while debt levels are still high with approximately $120 billion in long-term debt, the company has paid down more than $30 billion since 2020. Its free cash flow is also more than enough to cover its dividend obligations.

Data by YCharts.

With uncertainty surrounding the economy right now, a stock like AT&T is attractive because it has the characteristics of a defensive investment. It's reliable, has good cash flow, and operates in a vital industry. These are the characteristics you want from a dividend stock that you intend to hold for the long haul.

Should you invest $1,000 in AT&T right now?

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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.