Is Investing in ATT Stock for Long-Term Dividends a Viable Strategy?

In the quest for steady passive income, many investors consider purchasing stocks like ATT, known for their dividend yields. However, the decision to hold ATT stock over the long term solely for the purpose of earning a stable dividend is complex and requires a thorough evaluation. This article explores the pros and cons of this investment strategy, particularly in the context of a retirement portfolio and the company's financial health.

Why ATT Stock Could Be Attractive for Long-Term Investors

Consistent Dividend Growth: One of the primary reasons to consider ATT stock is its history of consistent dividend growth. Over the past four years, the dividend has increased by a steady 4% annually, providing a cushion for investors seeking stability. This growth is positive for long-term investors, offering a safer investment compared to stocks with more volatile dividends.

Fundamental Strength: ATT's fundamentals—revenue, net income, cash flow, assets, and equity—are solid, albeit not spectacular. The company demonstrates slow but robust growth, which suggests a steady earning pattern and reliable cash flow for dividends. However, while robust, these fundamentals do not guarantee immediate or significant value appreciation.

Challenges and Considerations

While the dividend yield is attractive, it is essential to consider the overall performance of the stock. Additionally, the recent performance of ATT stock underscores the risks involved in relying solely on dividends for long-term gains.

Recent Stock Performance and Dividend Distribution

Stock Price Drop: If you purchased ATT stock at the end of 2016 at $42.66 and it closed at $34.09 on August 14, 2019, the share price has dropped by 8.67 per share. Even if you reinvested dividends, the net result is a loss. Assuming a reinvestment scenario, you would still be down 2.86 per share, or a total loss of $6.70 over the period.

Tax Implications: Receiving dividends in a non-sheltered account means you have to pay taxes on each dividend payment. This complicates the equation, as the net gain or loss from dividends is further reduced by the tax burden. If you were relying on dividends for passive income, the current scenario would equate to a significant loss in real terms.

Long-Term Sustainability of the Dividend

The long-term sustainability of the dividend is also crucial. If ATT were to cut its dividend, it would not only reduce your cash flow but also potentially impact the share price negatively. During market downturns or economic uncertainties, this could lead to further losses and reduced security for long-term investors.

Conclusion

Investing in ATT stock purely for dividends is a risky strategy that requires careful consideration. While the consistent dividend growth and robust fundamentals are appealing, the recent stock performance indicates that relying solely on dividends for long-term gains may not be the best approach.

For long-term investors, it is advisable to diversify their portfolio and invest in a mix of stocks and other income-generating assets. This diversification can help balance the risks and provide a more stable return on investment.