AT&T (NYSE: T ) sports one of the slowest-growing dividends among the 30 Dow Jones Industrial Average (DJINDICES: ^DJI ) components. Over the last decade, AT&T's payouts have grown by an average of 3.9% a year. At the other end of the spectrum, fellow Dow member IBM (NYSE: IBM ) juiced its dividend by 20% a year. Closer to the Dow's average dividend growth, United Technologies (NYSE: UTX ) payouts have increased by 13% annually.
From this popular and often useful perspective, AT&T's dividend appears to be a total dud. It's trivially easy to find high-quality companies (aka Dow members) with drastically higher dividend growth rates.
But that doesn't necessarily make AT&T useless to income investors. You see, the telecom giant had a running start heading into this decade-long comparison.
Ten years ago, United Techologies shares came with a 1.4% effective dividend yield. IBM sat even further back, with a meager 0.8% yield. AT&T soared high above both, with shares yielding a 5.7% annual dividend payout.
In fact, neither IBM nor United Technologies have come close to AT&T's massive dividend yields in the last decade. It's not for a lack of effort, as the chart above shows. AT&T's head start was just that big.
How has this trade-off between slow dividend growth and high starting payouts worked out for AT&T investors? Quite well, I'd say.
Without dividends, AT&T shares have lagged far behind the Dow's returns in the decade-long period we're talking about. Not by a huge margin, historically speaking, but enough to make the difference felt in your portfolio:
But if you reinvested AT&T's payouts along the way, the story changes. From this angle, AT&T investors haven't lost out to the Dow for many years -- even if you ran the Dow through a DRIP plan, too:
So AT&T's large dividends have tripled investor returns over the last decade, and they make the difference between beating the market or not. IBM's generous dividend growth has only produced a 33% boost to Big Blue's plain share price returns. United Technologies provided 36% of its one-decade returns in the form of dividends.
That's not to say that AT&T is the perfect dividend stock. Reliable long-term payout growth is important, and Ma Bell's yields will eventually fall below many of its Dow peers unless the company makes a serious commitment to greater dividend boosts. Plus, past performance is no guarantee of future returns.
But keep this value-boosting payout in mind if looking for large-cap stocks with a solid dividend history. Warts and all, AT&T's big payouts have indeed helped its investors beat the market.
Top dividend stocks for the next decade
As AT&T's two-faced dividend history shows, picking great dividend stocks isn't always easy. But it's always worth the effort.
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.