This Dividend Aristocrat Is an Easy Call for Investors

We've seen a number of dividend reductions or suspensions in just the past few weeks because of the escalating coronavirus crisis. Multiple industries have been affected, including energy, retail, real estate, and restaurants. As several large cities remain on lockdown, many companies have had to cut or defer dividends in an effort to preserve cash. One notable exception to this is telecom giant and Dividend Aristocrat AT&T Inc. , which has raised its dividend for over 30 consecutive years and continues to pay its dividend during the recent market crisis. AT&T's dividend should remain intact, even if the economy enters a recession. AT&T has a highly secure dividend, and with an attractive nearly 7% yield, it remains a top stock for income investors. Consistency Through the Market Mayhem AT&T has always been a reliable dividend stock, but even more so with the rash of dividend suspensions in the past few weeks. Its standing as a dividend stock has been improved by its ability to continue paying its dividend through the coronavirus crisis. AT&T recently declared its next quarterly dividend payment on schedule. It has continued to pay its dividend due to its strong business model. Whereas so many businesses have been forced to close or at least significantly reduce their operations, AT&T's business continues uninhibited. AT&T is the largest communications company in the world, operating in four distinct business units: AT&T Communications (providing mobile, broadband and video to 100 million U.S. consumers and 3 million businesses); WarnerMedia (including Turner, HBO and Warner Bros.); AT&T Latin America (offering pay-TV and wireless service to 11 countries); and Xandr (providing advertising). The $269 billion company generates more than $180 billion in annual revenue. In the fourth quarter, the company generated $46.8 billion in revenue, down from $48 billion in the fourth quarter of 2018, as growth in domestic wireless services and business services partially offset declines in domestic video, legacy wireline services and WarnerMedia. But adjusted earnings-per-share equaled 89 cents, up 3.5% compared to 86 cents in the same quarter last year. For the year AT&T generated $181.2 billion in revenue, up 6.1% led by a full year of Time Warner and growth in domestic wireless services. Adjusted earnings-per-share increased to $3.57 compared to $3.52 in 2018. Why AT&T's Dividend Is Secure AT&T's services have seen stable -- if not rising -- demand, as so many U.S. consumers are forced inside their homes. This bodes very well for AT&T, and by extension its ability to pay dividends to consumers. 2019 was another year of steady growth, and the company's financial results should fare relatively well in 2020. AT&T has a big advantage over companies in other industries that are not able to operate right now, and therefore are forced to suspend or reduce their dividend payouts to shareholders. If AT&T can at least maintain its adjusted earnings-per-share in 2020 versus 2019, the company would have a dividend payout ratio of 58%. The modest payout ratio implies a secure dividend payout, even if earnings-per-share were to take a significant hit. Again, this seems unlikely, as consumers still need their broadband and wireless services. AT&T's dividend sustainability is further boosted by its actions to reduce debt. AT&T incurred an enormous amount of debt to finance the Time Warner acquisition. To that end, at the close of the Time Warner merger its debt load swelled to $180 billion and the net-debt-to-adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) metric came in at 3-times. But it has dedicated itself to increasing debt reduction over the past several quarters, which will help reduce the company's interest expense each year, thereby leaving more cash flow available for dividends. AT&T reduced its debt-to-EBITDA ratio to 2.5-times in 2019, with the goal is to reduce the leverage ratio to 2.0-times to 2.25-times by 2022. The company possesses durable competitive advantages that allow it to continue posting steady results, in good economies and bad. Specifically, AT&T has a competitive advantage with its entrenched position in various important industries. The company has direct contact with 170 million customers. And, AT&T has a recession-resistant business model. During the last major economic downturn, the Great Recession, AT&T posted earnings-per-share of $2.76, $2.16, $2.12 and $2.29 for the 2007 through 2010 period. The company did not eclipse its pre-recession high on an earnings basis until 2016, but the dividend did continue to grow throughout the entire period due to AT&T's high profitability. The market volatility seen in the past several weeks may linger for an extended period, particularly if the U.S. is about to enter a recession. In times like this, income investors should position their portfolios defensively with the goal of avoiding stocks that cut their dividends. For this reason, we believe investors should continue to buy AT&T, which not only has a high yield of nearly 7%, but also has a sustainable dividend payout. AT&T's services will continue to be needed and used every day, even in a recession. The company has increased its dividend each year for over 30 years in a row. With a modest dividend payout ratio, income investors can be reasonably assured that the company will continue paying its dividend, even in a severe recession.

This Dividend Aristocrat Is an Easy Call for Investors

While others are slashing and suspending their dividends, AT&T offers dependability during a time of crisis.

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