3. AT&T
Some investors might not believe that AT&T will ever cut its dividend. However, it didn't raise its dividend at the end of 2020, marking the first time it broke its four-quarter cycle of dividend hikes since 2005. Its payout ratio also exceeded 100% over the past 12 months.
AT&T is still a Dividend Aristocrat that has raised its payout annually for 36 straight years, but it could lose that elite status if it doesn't raise its payout this year. That probably won't happen, since AT&T can still easily cover its dividend with its free cash flow.
Yet it might be smarter for AT&T to reduce or suspend its dividend, which cost nearly $15 billion last year, for two reasons. First, AT&T ended last quarter with $153 billion in long-term debt, and it faces mounting pressure to divest its weaker businesses -- such as DirecTV -- to reduce that debt. Cutting its dividend could speed up that process.
Second, AT&T is investing billions of dollars in its streaming platforms, such as HBO Max, to offset its ongoing loss of pay-TV subscribers and keep pace with Netflix and Disney in the streaming race. Plowing cash into that competitive market instead of its dividend would be a smarter long-term move.
Therefore, investors shouldn't get too comfortable with AT&T's dividend right now, especially as CEO John Stankey -- who took the helm last July -- faces intense pressure to shake up and streamline the telecom giant.
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