Investors looking for high-yielding dividend stocks that can further increase their distributions may want to look to the telecommunications and tobacco sectors.
Shares of the telecommunications giant AT&T (NYSE:T) offer a stunning dividend yield of over 6% at recent prices. Altria Group (NYSE:MO) offers an even higher return for investors willing to take a chance on the U.S.-based tobacco company.
To find out which of these two stocks is better to buy, let’s start by looking at those that have put their prices under pressure lately.
AT&T
At the end of 2022, AT&T reduced its dividend payout to compensate for the spin-off of its media assets. The company has yet to raise its quarterly payout, and at recent prices it’s yielding 6.3%, or 363% more than you’d receive from the average S&P 500 index stock.
AT&T froze its dividend to reduce debilitating debt that stood at $128.7 billion at the end of March. That’s a lot, but it’s about $6 billion less than what the company had on its books a year earlier.
Now that most of AT&T’s 5G network is already built, capital investments are decreasing. This allows the company to spend even more money to reduce its debt.
In the first quarter, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 4.3% year-on-year to reach $11 billion. The company ended the first quarter with net debt equal to 2.9 times trailing 12-month adjusted EBITDA.
AT&T is confident it can achieve a net debt-to-adjusted EBITDA ratio of 2.5 in the first half of next year. The company hasn’t made any specific promises, but it will most likely start increasing its quarterly payout again once it hits that debt reduction goal.
The pace of AT&T’s upcoming dividend increases could be faster than one might expect from a well-established telecom giant. Phone sales declined significantly, but the company’s mobility business still managed to increase its first-quarter operating profit by 3.1% year-over-year.
AT&T’s fiber broadband service added 1.1 million subscribers over the past year to reach 8.6 million total. For customers not near fiber optic cable, the company launched a fixed wireless service last year. The new fixed wireless service added 110,000 new subscribers in the first quarter.
Altria Group
Altria Group is the tobacco company that sells the leading Marlboro brand in the US market. At recent prices, the stock offers a staggering 8.6% yield.
Cigarette sales have been declining for decades, and the recent proliferation of disposable nicotine vaporizers has accelerated that decline. Altria Group announced that cigarette shipment volumes declined 10% year-over-year in the first quarter.
Sales of combustible cigarettes are declining, but Altria Group can still raise prices on its powerful Marlboro brand. Additionally, it has led smokers to switch to smoke-free products. Despite a 10% reduction in cigarette shipments, total first-quarter revenue, excluding excise taxes, was down just 1% year-over-year.
Altria also owns approximately 8.1% of Anheuser-Busch InBev, even though he sold enough shares of the beverage company to earn $2.4 billion in March. Altria Group intends to return the proceeds to investors in the form of share buybacks.
Best buy?
Already retired investors could find Altria Group and its ultra high dividend more attractive yield than AT&T stock. Although it currently offers a high yield, the dividend increases you’ll see from the tobacco company in the coming years will likely be very small.
The Food and Drug Administration has stepped up enforcement of its flavor ban for nicotine-containing vaporizers. This could increase sales of Altria Group’s new electronic vaping product, NJOY, and offset the rapid decline in cigarette sales.
Even if there is a good chance that the Altria group will return to growth in its turnover and results, AT&T is significantly less risky. With the launch of its fixed wireless service, AT&T is no longer losing broadband customers. Additionally, profits have increased significantly in recent quarters.
AT&T probably won’t start raising its payments again until next year. In the long run, however, it will likely generate more passive income for patient investors. This makes it the best dividend stock to buy now.
Should you invest $1,000 in AT&T right now?
Before buying AT&T stock, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and AT&T wasn’t one of them. The 10 selected stocks could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $794,196!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns June 10, 2024
Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
Best High-Yielding Dividend Stocks to Buy Now: AT&T vs. Altria Group was originally published by The Motley Fool
