We recently compiled a list of the 10 Best High-Yield Dividend Stocks To Invest In. In this article, we are going to take a look at where AT&T Inc. (NYSE:T) stands against the other high-yield dividend stocks.
Dividend stocks have been investors’ favorites for a long time now. Over the years, these equities have performed better than the broader market. That said, when it comes to dividend investing, opinions often split down the middle between those seeking high yields and those favoring dividend growth. Though analysts recommend buying stocks with proven tracks of dividend growth, the appeal of high yields is hard to ignore. According to analysts, investors should steer clear of yield traps and focus on companies that consistently increase the value returned to shareholders. However, those advocating yields have plenty to say about the significance of dividend yields.
Also read: 12 Best Fortune 500 Dividend Stocks To Buy Right Now
One such example is a report published by Newton Investment Management. According to the report, high-yield dividend stocks outperformed the broader market during high inflationary periods between 1940 and 2021. The report also revealed that investment portfolios with high-yield dividend stocks outperformed those with low or no dividends in terms of value-weighted performance. High-yield portfolios surpassed low-yield ones by 199 basis points and zero-yield portfolios by 330 basis points. While this result provides useful information, it doesn’t offer details about the market conditions at the time, giving only a broad picture of high-yield stock performance. Analysts have paid close attention to how dividend stocks perform during market volatility, as the need for consistent income becomes more pronounced in such times. As a result, they suggest considering high-yield stocks only if these companies also have a strong history of dividend growth.
Dan Lefkovitz, a strategist for Morningstar Indexes, made the following comment about extremely high yields in the firm’s recent report:
“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield. Looking for the most yield-rich areas of the market can often lead you into troubled areas and dividend traps—companies that have a nice-looking yield that is ultimately unsustainable. You have to screen for dividend durability and reliability going forward.”
That said, high yields aren’t automatically a bad sign. In fact, dividend yield plays an important role when investing in dividend stocks, as it shows how much income an investor can expect relative to the stock’s price. However, to fully benefit from high yields, other factors like the company’s cash flow, payout ratio, and dividend growth must also be considered. If these metrics are strong, high-yield stocks can still be appealing. Some reports have pointed out the long-term advantages of high-yield stocks, noting that as dividend yields increase, returns generally rise, and risk decreases. Hartford Funds conducted research factoring in annualized standard deviation, which measures a portfolio’s return volatility, with a higher standard deviation indicating greater historical risk. The report found that from December 1969 to March 2024, high-dividend portfolios delivered an annualized return of 12.3%, mid-dividend portfolios 10.5%, and low-dividend portfolios 9.7%. The annualized standard deviations for these portfolios were 14.1%, 16%, and 20.8%, respectively.
The ideal situation would be when dividend growth and high yields go hand in hand, as many companies have demonstrated that this is achievable. With that being said, we will now take a look at some of the best dividend stocks with high yields to invest in.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and picked dividend stocks that have yields above 4%, as of January 20. The stocks are ranked in ascending order of hedge fund investors having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A person in the field using their smartphone to connect to wireless communication services.
AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 59
Dividend Yield as of January 20: 4.98%
AT&T Inc. (NYSE:T) is an American telecommunications, media, and technology services company that provides a wide range of services to its consumers. Over the past few years, the company has consistently increased its wireless and fiber internet subscriber base. Between the end of September 2022 and September 2024, the company expanded its total wireless customer base by approximately 7.5 million subscribers. Moreover, it gained over two million fiber subscribers during this period, which helped counterbalance the declining demand for traditional wireline services.
In the past 12 months, AT&T Inc. (NYSE:T) has surged by nearly 33%, due to improving fundamentals such as higher gross margins and reduced debt levels. In addition, at the end of Q3 2024, the company announced the sale of its remaining 70% stake in DirecTV to private equity firm TPG, which will generate significant cash to help reduce debt and return value to shareholders. With its strong balance sheet, rising share price, and high dividend yield, the company presents an appealing option for income seekers.
TCW Funds stated the following about AT&T Inc. (NYSE:T) in its Q3 2024 investor letter:
“AT&T Inc. (NYSE:T), based in Dallas, TX, is a nationwide provider of voice, video, and data communications services to businesses and consumers in the wired, wireless, and broadband. At initiation, the stock had a $141 billion market capitalization and met all five valuation factors with an above market dividend yield of 5.6%. From a sustainability prism, the company completed its commitment to invest $2 billion by the end of 2023 to help bridge the digital divide. AT&T is working on enabling low-income households to access to low-cost broadband services through its Access service plan as well as reaching out to more rural communities and Tribal lands where internet access remains a challenge. It is nearly 85% the way to providing one million people in need with digital resources through AT&T Connected Learning® with the goal to be reached by the end of 2025. In 2020, the company announced that it is committed to be carbon neutral by 2035 with zero carbon emission across all operations. It is deploying Smart Climate Solutions – through efforts like its Connected Climate Initiative – that will help enable its business customers to reduce their emissions as well. The company’s goal is to help collectively reduce its emissions by one billion metric tons – a gigaton – by 2035, compared to 2018 levels. The primary catalysts are new/strong management and restructuring. John Stankey was appointed CEO in July 2020 and he is committed to refocusing the company and improving its financial performance. The company combined its WarnerMedia operation with Discovery during 1Q:22 which eliminated AT&T’s exposure to the rapidly evolving media industry and refocused its core telecommunication business thus eliminating a major drag on profitability and the company’s balance sheet by reducing long-term debt from a peak $176 billion during 2020 to $142 billion at the end of June 2024 quarter. AT&T is moving aggressively to reduce cost and sell non-core assets such as its advertising platform Xander to Microsoft† which was accomplished during 2022. The company has redesigned its network to be software driven structure reducing the capital investment cycle in its national network – resulting in a network that is flexible with unrivaled speed and reliability – thus enhancing its nationwide position. By the end of 2023, it expanded its 5G network to reach more than 302 million people in nearly 24,500 cities and towns in the U.S. The company’s mid-band 5G+ network alone grew to cover more than 210 million people. AT&T is one of the largest investors in digital infrastructure in the U.S. Over the five years ending 2023, the company invested nearly $150 billion primarily in its wireless, fiber optics, and wireline networks. The extensive restructuring and refocusing of AT&T on its core business should result in improved earnings and cash flow while at the same time reducing uncertainty for shareholders.”
AT&T Inc. (NYSE:T) plans to distribute over $40 billion to its shareholders via dividends and share buybacks within the next three years. In the most recent quarter, the company reported an operating cash flow of $10.2 billion and its free cash flow came in at $5.1 billion. The company’s quarterly dividend comes in at $0.2775 per share and supports a dividend yield of 4.98%, as of January 20.
As of the end of Q3 2024, 59 hedge funds in Insider Monkey’s database owned stakes in AT&T Inc. (NYSE:T), worth more than $5.6 billion in total. Arrowstreet Capital was the company’s leading stakeholder in Q3.
Overall T ranks 6th on our list of the best high-yield dividend stocks to invest in. While we acknowledge the potential for T as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than T but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stock To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
