AT&T (NYSE:T), Altria Group (NYSE:MO), and ExxonMobil (NYSE:XOM) have all seen their share prices decline significantly over the last half-decade while the S&P 500 has nearly doubled. The question investors need to ask themselves is whether these high-yielding stocks at rock-bottom prices represent bargains, or if dividend cuts and further price depreciation are on the horizon?

Let's take a closer look and see if we can answer that question about these three high-yield dividend-paying stocks.

1. AT&T

AT&T took on a mountain of debt to finance its $48.5 billion acquisition of DIRECTV in 2015 and its $85 billion deal to buy Time Warner in 2018. The purchase of DIRECTV turned out to be a mistake. Subscribers of the combined cable and satellite business fell from 26 million in mid-2015 to less than 19 million by March 2020.

Shadow of a man in despair (holding his head) on the background of a declining stock chart.

Image source: Getty Images.

The WarnerMedia deal isn't as clear-cut. Among other things, the content it acquired enabled the launch of a streaming service, HBO MAX, that has surpassed expectations. Starting up in late May, the service already had 38 million subscribers in the U.S. at the end of September. The growth is likely to continue as WarnerMedia announced that its entire lineup of theatrical releases in 2021 would also be available simultaneously on its streaming service.

Although the debt is an issue, new CEO John Stankey is attacking it head-on. The company has refinanced more than $60 billion of its debt in 2020, cutting in half the amount due within a year and locking in the lowest average interest rate in the company's borrowing history.

Management expects to exit 2020, a year hindered by the pandemic, producing $26 billion in free cash flow. Despite the 7.3% yield -- or $0.52 per share per quarter -- the free cash flow payout ratio is only 58%. Yellow flags are flying after the company didn't raise the dividend in the first quarter for the first time since 2003, but Stankey reiterated on the latest earnings call that there was plenty of cash for investments in capital and content, paying down debt, and maintaining the dividend. Increasing the payout isn't off the table either. As long as management raises the dividend by the fourth quarter the streak of consecutive yearly increases will grow to 37 years, maintaining its status as a Dividend Aristocrat. If management can stay on plan, the payout will likely rise and the stock is a buy at the current price.

2. Altria Group

The company famous for making Marlboro cigarettes has a 10-year vision "to responsibly lead the transition of adult smokers to a non-combustible future." That will be an impressive transformation if management can pull it off. Smokable products made up 88% of revenue in 2019, compared to just 9% for smokeless products.

The transition is needed. Cigarette smoking among U.S. adults hit an all-time low of 13.7% in 2018. Despite the decline, more than 49 million U.S. adults, or 19.7%, used a tobacco product in 2018.

In late 2018, Altria took a 35% stake in e-cigarette company Juul Labs for $12.8 billion. After about a year and two write-downs, its stake in Juul is only worth about one-third of what the company paid. Almost simultaneously with the Juul deal, the company invested $1.8 billion for a 45% stake in cannabis producer Cronos Group (NASDAQ:CRON) and followed up by seeking patents on two cannabis vaporizer devices in February of this year. Lastly, IQOS, the electronic device that heats tobacco without burning it, hit the market in late 2019. One of these bets needs to pay off if the dividend trajectory is going to be sustained.

The stock's 8.25% dividend yield is tempting, but buying now is a bet that the decline in smokers will slow, or a substitute will catch on soon. In the past five years, the company has raised the dividend 10.9% annually while revenue has remained essentially flat. During that five-year stretch, the company paid out an average of 90% of its free cash flow as dividends.

Soon, the dividend will reach a ceiling where all free cash flow is paid back out to shareholders. Signs of this are already showing. In 2019, the company raised the dividend only 5%, and in 2020 the payout increased a mere 2.4%. The stock price probably deserves to be sitting at near-decade lows as it carries significant risks with little upside beyond the dividend.

3. ExxonMobil

For ExxonMobil, the $41 billion acquisition of XTO Energy in 2009 was a bet that natural gas would become an increasingly important source of global energy production. It did, but the price of the commodity is down 53% from 2009 rates, and the company's stock is down 39% since the deal was announced. Its debt has ballooned from $9.6 billion at the end of 2009 to $70 billion today. Add a pandemic that has reduced oil consumption to levels last seen in 2014, and it's not difficult to understand why ExxonMobil stock is down so much.

Management is reducing costs, announcing that as much as 15% of its global workforce could be cut through the end of 2021 and capital expenditures would be cut through 2025. The moves are long overdue. Even before the pandemic, revenue had dropped to only $255.6 billion in 2019, down 46% from the 2011 peak.

Beyond the cost cuts, the recent headwinds have the company refocusing on its most profitable assets. In fact, an executive recently claimed the moves would double the company's earnings by 2027 even at current oil and gas prices. The gains can't come soon enough for the shareholders who count on the dividend. The company's current yield of 8.4% -- or $3.48 per share annually -- is more than the company has generated in free cash flow in five of the last eight years including 2020. ExxonMobil's share price has been supported somewhat through all this because the company is a Dividend Aristocrat with a 37-year run of consecutive annual dividend increases. It needs an oil market recovery if it hopes to continue that streak.

With oil consumption set to peak around 2035 and calls for electric vehicles to reach price parity with gas-powered autos before 2025, the world may be quite different in 2027 than management expects. It is said that change happens slowly, and then all at once. Buying shares in ExxonMobil is a bet against that wisdom. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.