The stock market has been in a bull run for more than a year and a half. The benchmark S&P 500 index has risen by about 48% since the end of 2022.
Economic recoveries typically last much longer than recessions, but seasoned investors know the next bear market could be just around the corner.
The coming weeks could be a particularly good time to buy a reliable dividend payer. September is typically a bad month for stock markets, and this year could be worse than usual. July and August were both positive months for major market indices, so traders returning to the office after their summer vacation are sitting on piles of unrealized profits that they could take off the table.
With markets behaving unpredictably, it makes sense to load your portfolio with reliable dividend-paying stocks. At recent prices, AT&T (NYSE: T) offers a 5.4% yield that you can hold on to even if the ongoing bull run fizzles out. Here’s why it might be smart to buy it in September.
Broadband is back
The telecom industry isn’t the most exciting corner of the economy, but income-focused investors can get excited about the reliable cash flows that telecom providers generate. When was the last time you switched broadband or mobile internet providers?
AT&T has been losing traditional fixed internet subscribers for years. But late last year it launched a fixed wireless solution that uses its 5G infrastructure. Now, the total number of broadband subscriptions is growing again.
AT&T Internet Air added 139,000 new subscribers in the second quarter, and AT&T Fiber added 239,000. The combination increased total broadband revenue in the second quarter by 7% year over year.
Broadband isn’t the only segment that’s consistently growing. Wireless revenue in the second quarter rose 3.4% year-over-year, driven by an industry-leading churn rate.
Don’t be put off by a recent lack of dividend growth
AT&T cut its dividend in 2022 to offset the sale of its volatile media assets and pay down a massive debt load. Investors can expect annual dividend increases to resume, likely in 2025.
Over the past 12 months, AT&T’s highly profitable operation generated $21 billion in free cash flow. The company needed only 39% of that amount to meet its dividend obligation, so there is plenty of cash left over to reduce debt.
The company ended 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 is on track to reduce its net debt-to-adjusted EBITDA ratio to 2.5 in the first half of next year. No specific promises were made, but the company will likely resume increasing its dividend payout after that target is met.
In addition to rising revenue and lower interest expenses, AT&T investors could benefit from more stable capital spending now that its 5G rollout is largely complete. The company plans to spend between $21 billion and $22 billion on capital expenditures this year, 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 yields more than four times the average stock in the S&P 500 index. It’s also more than double the average dividend yield of stocks in the Dow Jones Industrial Average.
AT&T stock is tempting now, but you could get an even better return if it falls in September. Adding this stock to your buy list and waiting for a pullback could lead to a lot of dividend income down the road.
Should You Invest $1,000 in AT&T Now?
Before you buy AT&T stock, here’s what to consider:
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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.
History says September could be the best time to buy this dividend stock with an extremely high yield. Originally published by The Motley Fool
