When you look at a stock chart, it seems reasonable to assume that if the price is going up, then the company must be doing well.
And right now, AT&T‘s (NYSE: T) price is certainly going up.
Since October 2023, AT&T has been on a tear, with relatively few snags. The stock is currently trading at highs not seen since early 2020.
With all of this momentum behind the stock, you may think the company’s dividend is as safe as can be. You might even go so far as to believe that the company will raise the dividend in the near future.
Well, I’m here today to reveal to you that not everything is as it seems when it comes to this telecom giant. You can call me “Party Pooper John,” because I’m about to rain on AT&T’s parade.
Let’s see what the numbers have to say…
As always, when it comes to dividend safety, we need to look at free cash flow growth.
And AT&T’s is rocky, at best.
As you can see in the chart below, the company’s free cash flow collapsed in 2022. Even though the recovery in 2023 was enormous, free cash flow has been steadily declining ever since, with predictions in 2025 and 2026 looking even more grim.
AT&T’s free cash flow sat at over $20 billion in 2023, fell to $18.5 billion in 2024, and is expected to drop below $17 billion by 2026.
While forward estimates are never perfect, they can still give us a glimpse into a company’s outlook. AT&T’s dwindling free cash flow spells trouble for its dividend.
Furthermore, the company hasn’t been afraid to cut its dividend in the past. In 2022, AT&T spun off WarnerMedia and cut its own dividend nearly in half, from $0.52 per share to just under $0.28 per share. It’s stayed steady at that level ever since.
WarnerMedia merged with Discovery in April 2022 to form Warner Bros. Discovery (Nasdaq: WBD), which still has no dividend to this day. That means AT&T investors lost nearly half of their dividend overnight, with the only compensation being a dividendless stock that has lost 56% of its value since April 2022.
Really, the only redeeming quality for AT&T’s dividend safety is that the company’s payout ratio was a healthy 44.3% for 2024 and is expected to dip to 43% in 2025.
But overall, our system rates AT&T’s dividend as risky at best.
Let this be a reminder that just because a well-known stock is going up doesn’t mean its dividend is safe.
What stock’s dividend safety would you like us to analyze next? Let us know here.
Dividend Safety Rating: D
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