Dividend growth investors like high yielding stocks because
they offer more income. When it comes to these types of investments, investors
want to be sure that the dividend is safe. Stocks with yields above 5% can be a
red flag to as there maybe heightened risks of dividend cuts in the future.
Generally, these companies have elevated payout ratios, making future increases
unlikely unless earnings improve significantly or the company has to take on
debt to pay for the dividend. Neither of these cases is ideal and investors
should avoid these stocks. If earnings were to experience a significant decline,
the dividend could very well be at risk.
There are some companies, however, that pay a healthy
dividend yield that is well protected, allowing investors to have their cake
and eat it too. Some companies offer both a high yield and a low payout ratio that
reassures their shareholders that the dividend is not only safe, it can
increase in size over time. Let’s examine AT&T’s (T) business, recent
quarterly report and dividend history to see if the telecom giant is an
appropriate high yield investment.
I'm certainly a fan of AT&T. And it's true that a high yield can be a red flag. Thanks for sharing the analysis collection, and thanks for including me in your other blogs section. Much appreciated.
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