AT&T (T -0.16%) stands out for its dividend with a payout that currently yields over 5.5%. That's one of the highest dividend yields in the S&P 500, where the yield is currently less than 1.5%.
A big driver of the telecom stock's hefty yield is its massive dividend payment. Here's a quick look at AT&T's dividend and whether its big-time payout is sustainable.
AT&T currently pays its shareholders $0.2775 per share in dividends each quarter ($1.11 annually). With nearly 7.2 billion outstanding shares, the company pays out about $2 billion in dividends each quarter and roughly $8 billion each year.
While that's a lot of money, it's a manageable amount for AT&T. The telecom giant is a cash-flow machine. It produced $9.1 billion in cash flow from operations in the second quarter alone and $4.6 billion in free cash flow after funding capital expenses and vendor finance payments. That left it with plenty of money to cover its roughly $2 billion dividend outlay in the period.
AT&T is using its excess cash after paying dividends to strengthen its balance sheet. The company reduced its net debt by $1.9 billion in the second quarter and by $5.1 billion over the past year. That's allowing it to steadily reduce its leverage ratio. It's targeting to get its leverage ratio down to the 2.5x range in the first half of next year from its current level of around 2.9x.
The company's elevated leverage ratio has caused concerns about the dividend's sustainability. AT&T had already cut its payout by 50% in early 2022 following the spinoff of its media division to create Warner Bros. Discovery.
It did so to retain more cash to repay debt and fund capital investments to grow its fiber and 5G businesses. However, with its leverage ratio falling toward its target, AT&T's big-time dividend looks safe for those seeking an attractive income stream.
