Can AT&T Keep Hiking its Dividend Payouts?
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
AT&T (NYSE: T), the San Antonio, Texas based wireless and wired holding telecommunications giant, is one of the dividend paying stocks well-known among many investors. Indeed, T stock, with its current dividend yield of roughly 5 percent, has one of the highest dividend yields in the industry. Another direct competitor with AT&T is Verizon Communications (NYSE: VZ); it has a dividend yield of about 4.5% which is very close to the dividend yield of AT&T. Verizon’s growing list of 4G expansion in numerous US cities compared to AT&T’s slow pace is a concern. In fact, Verizon and Sprint (NYSE: S) are beginning to create impactful effects on AT&T with their increasing competition on iPhone and iPad subscriptions, but not to a worrisome level, as AT&T remains the top provider of iPhone users and it has the fastest 4G network in the US. In dollar value, the current dividend yield of AT&T translates to an annual rate of about $1.76 per share. Over the last 25 years, AT&T has been a steady performer yielding good returns to investors. Also, AT&T has progressively increased its yearly cash dividends over the last 25 years.
Last December, the Board of Directors of AT&T approved a 2.30 percent increase in dividend payouts per share. This last increase pushed up quarterly dividends to 44 cents from 43 cents per share paid to shareholders last October. The last payment was on July 6, 2012 and AT&T paid 44 cents per share. Looking at this scenario, it is natural for a smart investor to ask if AT&T can keep hiking its dividend payouts, or would there be a dividend bubble for T stock, soon?
In any case, can a dividend bubble hurt you? Not really, except if you are looking to buy a stock that is near its dividend bubble, you may have to pay a lot more than the value you are looking to get in return. If you are in doubt, do your math before you go for that high dividend paying stock. Or why would you pay as much as 10 to 15 percent more per share in your attempt to target a dividend yield of between 3 and 4 percent in most cases? That is where a dividend bubble hurts.
Looking at AT&T, it is a company that is regarded as one of the top 50 companies for diversity and it prides itself as one of the most honored companies in the world. There is the likelihood that nothing so severe can significantly affect its value in the market any time soon, going by all known metrics. The growth rate of AT&T this year exceeds its competitors and it’s more than double the measurable industry average. Its trailing 12 months margin, its return on assets and its return on equity for the same period are all significantly higher than the industry average. In addition, its trailing one year price to earnings ratio is less than the industry average.
On another note, AT&T has rapidly grown its U-verse TV service subscribers to more than 4 million and it has about 2 million subscribers on its high speed Internet platform, which is a good achievement for a service that was launched a few years ago. Overall, AT&T has been able to grow the revenues of its business services strategically by about 19% in the last seven quarters and it has also recorded a 38% growth rate in its U-verse revenues. Recently, AT&T signed a new contract deal with Henkel AG & Co KGaA to implement telepresence solutions and unified communications to enhance real-time collaboration and conference capabilities between Henkel’s employees, suppliers and customers in nine global locations. The contract is arranged to last for three years.
Looking at AT&T’s past record of dividend payouts, it has consistently maintained a dividend payout ratio of more than 50 percent with an average of 5.5% annual increase in the last 10 years. Also, the company has maintained dividend payment doubling on an average of every 14 years. Overall, past record dividend payout indicates that AT&T has practically been giving back most of its earnings to shareowners over the past years.
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