AT&T (T 0.36%) certainly has more than its fair share of problems right now. Its cable TV business -- primarily DIRECTV -- lost another 627,000 customers last quarter. It's lost more than 7 million of its television subscribers in just the past couple of years. Meanwhile, its WarnerMedia arm has been struggling with COVID-19-related theater shutdowns and filming impasses. WarnerMedia's revenue fell 10% last quarter, led lower by its Warner Bros. studio.
Yet, lots of investors are still digging the company's quarterly dividend and its current yield of 7.4%. And they should. Despite its litany of challenges, last quarter's adjusted earnings of $0.76 per share was still more than enough to cover its current quarterly dividend of $0.52. And that was a notably poor quarter. Before the COVID-19 pandemic took hold, AT&T was regularly earning between $0.80 and $0.90 per share, per quarter.
Nevertheless, although 35 straight years of annual dividend growth makes this telecom giant a Dividend Aristocrat one can count on, there are alternatives out there that bring a little less drama and volatility to the table. Income investors thinking about a new position in AT&T may instead want to consider Procter & Gamble (PG +0.33%), Coca-Cola (KO +0.24%), and Verizon Communications (VZ 0.32%). Let's take a closer look at these three dividend stocks.
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1. Procter & Gamble
Dividend yield: 2.3%
You know the company, but you may not know just how familiar you are with the consumer goods titan. Procter & Gamble is the name behind Pampers diapers, Downy fabric softener, Tide laundry detergent, Charmin toilet paper, and Gillette shaving supplies, just to name a few of its brands. Not only does the company have a lot of different ways to make money, but it makes the goods people keep buying regardless of the economic environment.
One of the chief investor criticisms of P&G in recent years has been that it's fallen out of touch with the way consumers think. For instance, Gillette has lost market share in recent years to newcomers like Dollar Shave Club and Harry's, which do lots of their business online. Some of these criticisms were legitimate too, even if the dividend wasn't immediately threatened. Most big problems start out as unrecognized small problems.
Procter & Gamble has evolved its operation in a big way, however. Chiefly, it's embraced the power of connecting with consumers in stores as well as online. Last quarter's e-commerce business was up 50% year over year, and while digital still only drives between 11% and 12% of its revenue, the company has clearly learned that it needs to be omnichannel, and it's learning how to be omnichannel.
2. Coca-Cola
Dividend yield: 3.1%
Sugary sodas may be falling out of favor as consumers become more health-minded, but The Coca-Cola Company is so much more than its Coke and Sprite brands. This is the same company that owns Dasani water, Minute Maid juices, POWERADE, Gold Peak tea, Barq's root beer, and other drink brands. Its products can be found all the way down your grocer's beverage aisle.
This diverse portfolio hasn't always been enough to keep the company on a steady growth track. Revenue peaked in 2013, for example, with the company still too reliant on sparkling beverages. That's continued to change in the meantime, as has its business model. Coca-Cola shortly thereafter began a major restructuring effort, offloading the bottling aspect of its business to localized franchises.
The end result was shrinking revenue that obscured the headwind related to changing consumer behavior, but ultimately, what remained was higher-margin revenue. Operating as well as net income began to grow again in 2018 even though revenue didn't.
The company was still in regrouping mode as of last year, and the pandemic rendered this year's numbers useless as a measure of the beverage company's health. To the extent one can ferret out the post-COVID-19 normal for The Coca-Cola Company, however, the reorganization of its bottling and licensing business appeared to be working well. Last year's third-quarter revenue grew 8%, and pre-tax net income grew 3% year over year. Fourth-quarter revenue last year improved 16%, and pre-tax income more than doubled. Perhaps most important, last year's full-year diluted earnings of $2.07 per share was more than enough to cover its current annualized payout of $1.64 per share.
3. Verizon Communications
Dividend yield: 4.2%
Finally, while AT&T may not be the best fit for all income-minded investors, that doesn't mean a telecom name can't round out your dividend-paying positions. Verizon Communications is yielding a pretty healthy 4.2% on its dividend and has upped its annual payout 14 years in a row now. That doesn't yet qualify the company as a Dividend Aristocrat, but it sure looks like Verizon is working its way toward that label.
The biggest reason Verizon is arguably the better pick of the two telecom plays, however, is that Verizon hasn't bogged itself down by misguided ventures like a television and movie studio or a cable television operation. Yes, its acquisitions of AOL and Yahoo! turned into debacles. Beyond those gaffes, though, Verizon has kept a tight focus on things it could do well, and things that improve its core telecom business.
Its big pet project of late has of course been fifth-generation networking (5G). The company noted in March it would spend another $18 billion in 5G infrastructure this year, and well it should. M Science estimated in August that Verizon has sold more 5G smartphones than any other wireless carrier by far, plugging them into its robust 5G network that leans heavily on its huge fiberoptic network. In the meantime, Verizon has already started to deploy at-home broadband hardware that connects consumers to its wireless 5G network.
It will take some time for Verizon to monetize and then annuitize this technology. But that just means the company's got a long earnings runway that should keep its dividend growing for years to come.
