We would not be too quick to buy AT&T Inc. (NYSE: T) before the dividend is distributed

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<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "AT & amp; T Inc. (NYSE: T) Share will be traded ex dividend in 4 days. If you buy the stock on or after January 9, you will not be able to receive this dividend if it is paid on February 3. "Data reactid =" 27 ">AT&T Inc. (NYSE: T) stock is traded ex dividend in 4 days. If you buy the stock on or after January 9, you will not be able to receive this dividend if it is paid on February 3.

AT & T's next dividend payment will be $ 0.52 per share. Overall, the company distributed $ 2.04 to shareholders last year. Looking at the last 12 months of distributions, AT&T has a follow-up return of approximately 5.3% on a current stock price of $ 39.06. Dividends make a significant contribution to the return on investment of long-term holders, but only if the dividend continues to be paid. So we have to check whether the dividend payments are covered and whether the result grows.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = " Check out our latest analysis for AT & amp; T on "data-reactid =" 29 "> Check out our latest analysis for AT&T

Dividends are usually distributed from company earnings. So if a company pays more than it earns, there is usually a higher risk of its dividend being cut. AT&T paid out 91% of its earnings, which is more than we can imagine, unless there are mitigating circumstances. Since cash flow is generally more important than profit in assessing the sustainability of the dividend, we should always check whether the company has generated enough cash flow to be able to afford the dividend. Last year it paid out 51% of its free cash flow as a dividend, which is what most companies do.

It is good to see that AT & T's dividends, while not well covered by earnings, are affordable, at least from a financial perspective. However, if this happens repeatedly, we would be concerned about whether the dividend is sustainable in a downturn.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Click Here you can see the company's payout ratio and analyst estimates of its future dividends."data-reactid =" 32 "> Click here to see the company's payout ratio and analyst estimates of its future dividends.

NYSE: T Historical Dividend Yield, January 4, 2020

Are income and dividends growing?

If profits fall, dividend companies will be much more difficult to analyze and safer to own. If the business goes into a downturn and the dividend is lowered, the value of the company could drop dramatically. With this in mind, we are concerned about the 8.2% annual decline in earnings at AT&T over the past five years. If earnings per share decrease, the maximum dividend that can be distributed also decreases.

Most investors rate a company's dividend prospects primarily based on the historical growth rate of dividends. AT&T has increased its dividend by an average of 2.4% per year based on dividend payments over the past ten years. This is fascinating, but the combination of rising dividends despite falling profits can usually only be achieved by paying a higher percentage of the profit. AT&T is already paying out 91% of its profit, and as earnings fall we believe it is unlikely that this dividend will rise quickly in the future.

The bottom line

Should investors buy AT&T for the upcoming dividend? Earnings per share have fallen recently. In addition, AT&T pays out a large part of its earnings and more than half of its free cash flow. It's hard to say whether the company has the financial resources and the time to change things without cutting dividends. From a dividend perspective, this is not an attractive combination, and we tend to pass it on for the time being.

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "You are wondering what the future holds for AT & amp; See what the 26 analysts we predict are forecasting. with this visualization of his historical and future estimated profits and cash flows"data-reactid =" 50 "> Wondering what the future holds for AT&T? See what the 26 analysts we predict are forecasting and use this visualization to illustrate historical and future estimated earnings and cash flows

<p class = "Canvas-Atom Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "We would not recommend buying only the first dividend stock but see. Here is a list of interesting dividend stocks with a yield of more than 2% and an upcoming dividend."data-reactid =" 55 "> However, we would not recommend buying only the first dividend stock you see, here is a list of interesting dividend stocks with a yield of more than 2% and an upcoming dividend.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com, This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading."data-reactid =" 56 ">If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com. This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading.