U.S. telecom behemoth AT&T Inc.’s T board has approved a 2.1% increase in the company’s quarterly cash dividend to 48 cents per share from 47 cents. On an annualized basis, the dividend payment amounts to $1.92, up from $1.88. The raised dividend is payable on Feb 1, 2016, to shareholders of record at the close of business as on Jan 8, 2016.
This is AT&T’s 32nd straight annual increase which reflects the company’s strong cash position and solid balance sheet. We believe that the dividend hike will bolster investor confidence in the company’s financials and therefore improve AT&T’s market position against competitors like Verizon Communications Inc. VZ, T-Mobile US, Inc. TMUS and Sprint Corp. S.
The company has one of the strongest balance sheets in the industry with net debt-to-adjusted EBITDA ratio of 2.28 times at the end of third-quarter 2015. Also, during the first nine months of 2015, AT&T generated $26,695 million of cash from operations. We believe that the company’s focus on building shareholder’s value will continue to grow as it expects strong operating results for full-year 2015.
Evidently, despite projected capital expenditure of $21 billion, the company expects strong free cash flow of $15 billion in 2015. Notably, the strong cash flow lends AT&T the financial leverage to invest in its business, reduce debt and return substantial value to shareholders through dividends and share repurchases.
Meanwhile, introduction of an innovative Managed Internet Service for large business customers and the undertaking of initiatives in the IoT space bode well for the company. Also, AT&T is the leading provider of WiFi (wireless broadband), which is a key growth driver. Further, the company stands to benefit from its investments in the Mexican telecom market.
In 2015, the company expects to see double-digit consolidated revenue growth primarily owing to its DIRECTV purchase. Further, AT&T expects earnings per share in the range of $2.68–$2.74, up from the prior outlook of $2.62–$2.68.
However, investors expected to witness a higher dividend increase, particularly because of the DIRECTV acquisition. We note that the company’s plan to bring down its payout ratio along with heavy capital spending plans for the future were the reasons behind the small increase.
AT&T currently has a Zacks Rank #2 (Buy).
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