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AT&T Stock Is Falling, But Its Dividend Yield Is Getting Even Bigger

AT&T

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AT&T stock is shedding value on Thursday, after a big miss on second-quarter free cash flow and lowered guidance for the remainder of the year. That overshadowed strong subscriber gains and operational performance in the period.

That stock-price decline is lifting AT&T shares’ (ticker: T) annual dividend yield.

The telecommunications giant has long been a favorite among income investors, with a juicy yield and stable cash flows backed by recurring revenue from subscriptions and high barriers to entry in the asset-intensive industry. This year brought a dividend cut when AT&T spun off WarnerMedia, as the company doubled down on investing in its 5G and fiber networks.

AT&T’s current dividend commitment is for around $8 billion annually, or $2 billion a quarter. The company generated $1.4 billion in free cash flow in the second quarter reported on Thursday, far short of the $4.7 billion that analysts were expecting. It also means AT&T’s free cash flow for the quarter didn’t cover its dividend commitment in the period—not what income investors like to see.

Management lowered its 2022 free cash flow guidance to $14 billion, from $16 billion, on Thursday. That would lift AT&T’s dividend payout ratio to about 57% in 2022. The company continues to expect $20 billion in free cash flow in 2023, for a healthier dividend payout ratio of 40%.

The $8 billion in annual dividend payments translates to $1.11 per share annually. At AT&T stock’s roughly $18.60 on Thursday morning, down 9%, that’s an annual dividend yield of 6%. It compares with rival  Verizon Communications
‘ (VZ) dividend yield of 5.4%, and the S&P 500 ’s 1.5%.

It puts AT&T among the top handful of dividend payers in the index. First on the list is fellow telecom company Lumen Technologies (LUMN), with a 9.6% annual yield, followed by tobacco giant Altria Group (MO), whose stock yields 8.5%. Next up are a pair of real estate stocks, Vornado Realty Trust (VNO) and Simon Property Group (SPG), yielding 7.3% and 6.6%, respectively.

AT&T ranks seventh in the S&P 500, followed by Verizon at ninth. Three companies are tied for tenth-highest yield in the index, each with 5.3% annual dividend yields.

Here’s the full list:

The S&P 500’s Top Yields

Company / Ticker Recent Price Annual Dividend Per Share Annual Dividend Yield
Lumen Technologies / LUMN $10.39 $1.00 9.6%
Altria Group / MO $42.42 $3.60 8.5%
Vornado Realty Trust / VNO $29.11 $2.12 7.3%
Simon Property Group / SPG $103.45 $6.80 6.6%
Oneok / OKE $57.63 $3.74 6.5%
Kinder Morgan / KMI $17.55 $1.11 6.3%
AT&T / T $18.60 $1.11 6.0%
Dow / DOW $50.94 $2.80 5.5%
Verizon Communications / VZ $47.79 $2.56 5.4%
Phillip Morris International / PM $94.55 $5.00 5.3%
Williams Cos / WMB $32.03 $1.70 5.3%
IBM / IBM $125.48 $6.60 5.3%

Source: FactSet

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