The Smartest Dividend Stock to Buy With $1,000 Right Now
While many investors focus on a company's stock price, dividends can often be unsung heroes when it comes to making money. Dividend stocks may not be as sexy as growth stocks or get much of the same attention, but their steady income can work wonders.
If you have $1,000 available to invest and are looking for a dividend stock that can produce above-average income, telecom giant AT&T (NYSE: T) is a great option. Its dividend yield is more than three times the S&P 500 average and routinely stays that way.
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AT&T is making gains in its postpaid phone and fiber businesses
The company pulled off an impressive turnaround since cutting ties with its media and entertainment segment. Since the $43 billion WarnerMedia spinoff in April 2022, AT&T refocused on its bread and butter: its telecom business.
The shift in focus seems to be paying off, with impressive increases in postpaid phone and fiber internet customers. Here's how many customers AT&T added in each division in each quarter in 2024:
| Quarter | Postpaid Phone Net Adds | Fiber Net Adds |
|---|---|---|
| Q1 | 349,000 | 252,000 |
| Q2 | 419,000 | 239,000 |
| Q3 | 403,000 | 226,000 |
| Q4 | 482,000 | 307,000 |
Source: AT&T.
In 2024, AT&T's postpaid phone churn (the percentage of customers who cancel their phone plans) was industry-leading at 0.76%. This means for every 1,000 postpaid phone customers, fewer than eight canceled their service last year.
The fourth quarter of 2024 also marked the 20th consecutive quarter in which AT&T added at least 200,000 fiber customers, helping to increase its consumer broadband revenue to $11.2 billion (up 7.2% year over year). In 2025, management plans to invest around $22 billion to grow its 5G and fiber business, which should help keep the momentum going.
Investors shouldn't worry about the security of AT&T's dividend
Given AT&T's previous missteps and large debt ($123.5 billion as of the end of 2024), investors worried that the company's $1.11 annual dividend was at risk of being reduced again (it was cut nearly in half in 2022) or eliminated entirely.
T Dividend data by YCharts. The quarterly dividend is $0.2775.
Today, those concerns are being eased by free cash flow that is more than enough to cover its dividend and debt obligations. In 2024, its free cash flow was $17.6 billion, more than double the roughly $8.2 billion it paid in dividends.
On the fourth-quarter earnings call, CEO John Stankey said that the company plans to return around $40 billion to shareholders over the next three years -- with $20 billion in dividend payments and $20 billion in share buybacks, both of which signal the company's confidence in its financial health.
AT&T's stock is still trading at favorable levels
Considering the importance of AT&T's free cash flow in covering dividends, debt reduction, infrastructure investments, and more, it's important to note how the stock is trading relative to it.
Despite rising close to 53% in the past 12 months, AT&T only trades around 10 times its free cash flow. That's slightly above its biggest competitor, Verizon, but much lower than T-Mobile. For a blue-chip dividend stock, that's a favorable value.
T Price to Free Cash Flow (Annual) data by YCharts.
Dividend yields change as stock prices change, but if we assume AT&T's yield remains in the 4% range, a $1,000 investment could earn $40 annually.
There's no way to predict how the stock price will perform, but one thing's for sure: AT&T is one of the best long-term dividend stocks that investors can add to their portfolio. It's the top player in an industry that's become indispensable in everyday American life.
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*Stock Advisor returns as of February 3, 2025
Stefon Walters has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
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