AT&T’s dividend history is long. The company has raised its dividend for 35 consecutive years. But will this trend continue? Let’s take a look at its recent earnings announcement, dividend history and payout safety going forward.

AT&T Earnings Announcement

This morning, AT&T announced adjusted earnings of $0.89. And that’s close to what analysts were expecting so it probably didn’t move the share price much. The bigger impact came from sales and the TV business…

The company reported $48.6 billion in revenue which was down 2.4%. AT&T’s TV business is struggling to keep subscribers. As a result, AT&T stock was down about 3% in midday trading. Although, the loss of subscribers isn’t a great sign, the company is a giant that continues to produce healthy cash flows.

Business Overview

Even with the daily drop, AT&T is a $273 billion business. The company is based out of Dallas, Texas, and it has 268,000 employees. Last year AT&T pulled in $181 billion in sales and that breaks down to $637,000 per employee.

The company is technology-focused and operates within the communications sector. It also maintains a BBB credit rating. This allows AT&T to issue investment-grade debt to build the business and pay dividends.

AT&T Dividend History Last 10 Years

The company paid investors $1.69 per share a decade ago. And over the last 10 years, the dividend has climbed to $2.05. That’s a 21% increase and you can see the annual changes below…

The compound annual growth is 1.9% over 10 years… but over the last year, the dividend climbed 2%. The increase in dividend growth isn’t huge, but slow and steady is attractive for long-term income investors. AT&T might work out as a great income investment. Let’s take a look at the yield…

Current AT&T Dividend Yield vs. 10-Year Average

AT&T’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a useful indicator of intrinsic value. Generally, a higher yield is better for buyers. That’s assuming it’s sustainable – and we’ll dig into that later.

The dividend yield comes in at 5.5% and that’s right in line with the 10-year average. The chart below shows the dividend yield over the last 10 years…

So historically, the yield isn’t pointing toward undervalued or overvalued levels. This still might be a good investing opportunity for steady income.

AT&T Free Cash Flow Dividend Payout Ratio

Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 AT&T earns, it pays investors $0.60.

The payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other noncash items. A better metric is free cash flow.

Here’s AT&T payout ratio based on free cash flow over the last 10 years…

The ratio has bounced around but stayed below 100%. And with the recent dividend payout ratio close to 50%, it seems to have a wide safety margin. This gives wiggle room for AT&T’s board of directors to continue raising the dividend.

Even with a loss of TV subscribers, AT&T seems to be on solid ground. And the recent price drop from the earnings announcement is presenting a better buying opportunity.

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