Income investors look for multiple key characteristics when sizing up a potential investment. Namely, income investors want to see a stock pay a high dividend yield, along with sustainable growth and regular dividend increases. The combination of these qualities creates a high-quality dividend stock for the long-term.

Telecom giant AT&T Inc. (T) is a prime example of a stock with all the necessary makings of a long-term holding. AT&T stock is a buy for income investors looking for dependable dividends.

Growth And Dividends On The Dial

AT&T is the largest communications company in the world, operating in four distinct business units: AT&T Communications (providing mobile, broadband, video and other communications services to U.S. consumers and more than 3 million businesses), WarnerMedia (including Turner, HBO, and Warner Bros.), AT&T Latin America (providing advertising). The stock has a market cap above $230 billion and AT&T generates ~$170 billion in annual revenue. 

On April 24th, 2019 AT&T reported Q1 2019 results for the period ending March 31st, 2019. For the quarter the company generated $44.8 billion in revenue, up 17.8% from the year-ago quarter, primarily driven by the Time Warner acquisition. On a pro-forma basis including WarnerMedia, revenue would have been down 0.9%, as a 2.9% increase in Wireless Service revenue was offset by declines in the Entertainment Group, Business Wireline, and Latin America. Adjusted earnings-per-share totaled $0.86 against $0.85 in the prior period.  

Previously AT&T provided an outlook for 2019 anticipating low single-digit adjusted EPS growth, a dividend payout ratio below 60% and end-of-year net debt to adjusted EBITDA that was expected to be in the 2.5x range. As of the most recent report, net debt stood at $169 billion, with a net debt to adjusted EBITDA ratio of 2.8x. This number is expected to come down to ~$165 billion in quick order as a result of Hulu deal and Hudson Yards transaction. The company says that it is on pace to get its debt down to ~$150 billion by year-end and is on track to reach the 2.5x mark.

AT&T’s strong growth and improving balance sheet help secure the company’s hefty dividend, currently yielding 6%. AT&T combines a high dividend yield with regular dividend growth. AT&T has increased its dividend for over 30 years in a row, placing the stock on the list of Dividend Aristocrats.

Buy And Hold For The Long Term

Investors can generate superior long-term returns by focusing on stocks with high profits, durable competitive advantages, and consistent dividend growth. AT&T has a competitive advantage with its entrenched position in various important industries. Although this position could be eroding due to technological change, it remains that the company has direct contact with 170 million customers.

The nearly $100 billion acquisition of Time Warner has presented a number of growth catalysts for AT&T moving forward. Not only does AT&T instantly become a content giant with networks such as HBO, TNT, and CNN, it also obtains a movie studio. This provides AT&T with a hedge against increasing content costs.

AT&T should continue to generate growth in the years ahead, thanks to the Time Warner acquisition. This should allow the company to continue raising its dividend each year, as well. With a current dividend yield of 6%, AT&T is an attractive dividend stock.