The stock market has been on a bull run for over a year and a half. The benchmark S&P 500 index has risen about 48% since the end of 2022.
Economic recoveries tend to last much longer than recessions, but seasoned investors know that the next bear market could be right around the corner.
The next few weeks could be a particularly good time to purchase a reliable dividend payer. September tends to be a lousy month for stock markets and this year could be worse than usual. July and August were both positive months for major market indexes, so traders returning to the office after their summer holidays are sitting on heaps of unrealized profits that they could take off the table.
With markets behaving unpredictably, it makes sense to stuff your portfolio with reliable dividend-paying stocks. At recent prices, AT&T(NYSE: T) offers a 5.4% yield that you get to keep even if the ongoing bull run fizzles out. Here's why scooping it up in September could be a smart thing to do.
Broadband is back
The telecom industry isn't the most thrilling corner of the economy, but income-seeking investors can get excited about the reliable cash flows that telecom providers generate. After all, when was the last time you switched your broadband or mobile internet service provider?
For years, AT&T has been losing traditional wireline internet subscribers. Late last year, though, it launched a fixed wireless solution that taps into its 5G infrastructure. Now, total broadband subscriptions are on the rise again.
AT&T Internet Air added 139,000 new subscribers in the second quarter and AT&T Fiber added 239,000. The combination raised total second-quarter broadband revenue by 7% year over year.
Broadband isn't the only segment that's growing consistently. Second-quarter wireless service revenue climbed by 3.4% year over year thanks to an industry-leading churn rate.
Don't be put off by a recent lack of dividend growth
AT&T slashed its dividend payout in 2022 to adjust for the sale of its unpredictable media assets and pay down an enormous debt load. Investors can look forward to annual dividend raises beginning again, probably in 2025.
Over the last 12 months, AT&T's highly profitable operation generated $21 billion in free cash flow. The company needed just 39% of this sum to meet its dividend commitment, so there's plenty of cash left over to reduce debt.
The company finished the second quarter with $127 billion in net debt, which was 2.87 times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Management says it's on pace to reduce its net-debt-to-adjusted-EBITDA ratio to 2.5 in the first half of next year. There haven't been any specific promises, but the company will likely begin raising its dividend payout again after achieving this goal.
In addition to a rising top line and lower interest expenses, AT&T investors could benefit from steadier capital investments now that its 5G rollout is mostly complete. The company intends to spend between $21 billion and $22 billion this year on capital investments, which would be a significant improvement from the $23.6 billion it spent last year.
Get ready to buy the dips
Despite its stock price rising 23% this year, AT&T's dividend still offers a yield that is more than four times higher than the average stock in the S&P 500 index. It's also more than double the average dividend yield from stocks in the Dow Jones Industrial Average.
AT&T stock is tempting right now, but you could receive an even better yield if it dips in September. Adding this stock to your buy list and waiting for a pullback could lead to heaps of dividend income down the road.
Should you invest $1,000 in AT&T right now?
Before you buy stock in AT&T, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AT&T wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $656,938!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 3, 2024
Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
