Can AT&T’s 6.8% Yield Keep Ringing Higher?
AT&T Inc. (NYSE: T) is in a better position now that the Sprint/T-Mobile merger closed. It’s just a three-way wireless war now with Verizon as the other player. What happened over time is that AT&T acquired DirecTV and then Time Warner, and its balance sheet now has a lot more debt. With a 6.8% yield, having a share price that traded back down close to $30 after challenging $40 again last year, seems artificially high after years of hiking those dividend payments. And AT&T has a new chief executive since Randall Stevenson’s retirement announcement. The good news is that a $2.04 annualized payout is against 2019 earnings of $3.57 per share. The bad news is that Refinitiv’s consensus now sees earnings at $3.20 per share in 2020 and $3.31 per share in 2021.
For now, AT&T’s dividend is probably safe, and the company said in May that it is generating enough cash to comfortably keep its payout, even as Verizon is only paying a 4.3% dividend yield to its shareholders. If AT&T makes any more game-changing asset purchases or if the recession continues to weigh on the Time Warner unit, then that dividend liability of over $14 billion might become a heavy burden. Standard & Poor’s (rated it as BBB) even warned back in April that a deeper and longer recession’s drag on earnings and pressure on its debt/EBITDA could push management to cut or even suspend its dividend.
BP’s 10% Slick Yield
BP PLC (NYSE: BP) screens out as better than a 10% yield in both its U.S.-listed shares and its ordinary shares that trade in London. This oil giant often has gone on record that it will defend its dividend. Even the great catastrophe in the Gulf of Mexico did not wipe out that yield. Now the company cut 10,000 jobs, took a $17.5 billion write-down and just raised what was reported as $12 billion to bolster its balance sheet. This has been a surprising story over time, and current oil prices make the dividend a much harder sell in the double-digits.
An analyst at Berenberg recently suggested that a dividend cut for BP was an increasing probability to give breathing room to its balance sheet and to buffer capital spending while it targets lower carbon businesses.
CenturyLink’s 9.9% Yield Calling
CenturyLink Inc. (NYSE: CTL) has had the same $0.25 per share dividend since the start of 2019, but it used to be a $0.54 payout before that. Its share price pattern has been one of decline since 2014, but the problem in calling out the $1.00 annualized dividend is that normalized earnings are closer to $1.30 at the current time. With an $11 billion market cap, it still has over $33 billion in long-term debt. Perhaps the saving grace here is its old $34 billion acquisition of Level 3 in 2017. If CenturyLink could pay down more of its debt, this dividend would look safer. Costs and pressure on wireline operations pose longer-term problems here.
CenturyLink recently was included in a Barron’s list of 22 stocks investors shouldn’t buy. Despite some positive ratings still being seen, most analysts have been trimming their price targets on CenturyLink.
Dow’s 6.75% Yield May Not Be Fluid
Dow Inc. (NYSE: DOW) was part of a major change when its merger with DuPont and the so-called NewCo Dow was split out of that larger entity in 2019. The commodity chemicals maker posted $3.49 in earnings per share in 2019, and its $2.80 annualized dividend per share seemed fine. Then the recession hit, and this core cyclical business is seeing its earnings under pressure. Refinitiv is now projects a $1.30 EPS figure in 2020 and $2.32 EPS in 2021. Merger and break-up companies can be difficult to evaluate for a while after a deal is done, but adding in an instant recession makes it just that much harder.
Back in May of 2019, JPMorgan called out Dow’s $2.80 per share dividend as one that would act as a brake to equity price deterioration. The firm noted that dividend should be safe unless there was a prospective recession or if significantly lower oil prices came about. Well, isn’t that exactly what happened?