When you glance at a stock chart, it’s tempting to think that rising prices are a sure sign of a company’s success. Presently, AT&T (NYSE: T) exemplifies this with its share price climbing steadily upward.
Since October 2023, AT&T has made significant gains, with its stock now reaching levels it hasn’t seen since early 2020.
With such positive momentum, it’s easy to assume AT&T’s dividend is rock-solid, with potential for future increases. However, I’m here to play the skeptic and offer a reality check about this telecommunications giant. Allow me to delve into the numbers to shed some light on what’s happening.
When assessing dividend safety, the critical factor to examine is the growth of free cash flow. Unfortunately, AT&T’s free cash flow has shown considerable volatility.
In 2022, the company’s free cash flow took a nosedive. Although 2023 saw a significant recovery, it’s been on the decline ever since, with projections for 2025 and 2026 looking even more pessimistic. AT&T’s free cash flow was over $20 billion in 2023 but dropped to $18.5 billion in 2024, with expectations of falling below $17 billion by 2026.
While forecasts aren’t always spot on, they provide a snapshot of what might lie ahead. For AT&T, the declining free cash flow spells potential hazards for its dividend.
Moreover, let’s not forget AT&T’s history with dividend cuts. In 2022, alongside spinning off WarnerMedia, the company slashed its dividend nearly in half, from $0.52 per share to just under $0.28 per share—a rate that’s held steady since.
WarnerMedia’s merger with Discovery in April 2022 to become Warner Bros. Discovery (Nasdaq: WBD) did little to cushion the blow for investors, as it still doesn’t pay a dividend. AT&T shareholders effectively lost nearly half their dividend, and the newly formed stock hasn’t fared well, losing 56% of its value since the merger.
The only saving grace for AT&T’s dividend at the moment seems to be its payout ratio—a reasonably healthy 44.3% for 2024, expected to drop slightly to 43% in 2025.
All things considered, we rate AT&T’s dividend as risky at best. Let this be a reminder: A rising share price does not necessarily mean a secure dividend.
Are there other stock dividends you’re curious about? Let us know, and we’ll take a closer look.
Dividend Safety Rating: D
Interested in whether we’ve analyzed your favorite stock lately? Visit the Wealthy Retirement homepage, click "Search" at the top right, type in the company name, and press "Enter."
Remember, our Safety Net tool evaluates individual stocks only, not exchange-traded funds, mutual funds, or closed-end funds.
