Is AT&T's 5%-Yielding Dividend Finally a Buy for Passive Income?

Core Viewpoint - Concerns regarding the sustainability of AT&T's dividend are diminishing as the company improves its financial position and reduces leverage, making its 5% yielding dividend more sustainable [1][3]. Group 1: Financial Performance - AT&T ended Q2 with $126.9 billion in net debt, resulting in a leverage ratio of nearly 2.9 times, an improvement from$132 billion and a 3.1 leverage ratio a year ago [2]. - The company generated excess free cash flow, allowing for $1.9 billion in debt reduction in Q2 and$5.1 billion over the past year [2]. - AT&T anticipates reaching a leverage ratio of around 2.5 in the first half of next year, with further declines expected due to the sale of its 70% stake in DirecTV, which will provide an additional $7.6 billion in cash through 2029 [3]. Group 2: Dividend Comparison - Although AT&T has not cut its dividend since the media spinoff, it has not increased it either, unlike Verizon, which has consistently raised its dividend for 18 consecutive years [4][5]. - AT&T's current dividend yield is approximately 5%, while Verizon offers a higher yield of around 6% and has a stronger financial profile with a leverage ratio of 2.5 [4][5]. - Verizon's ability to increase its dividend is attributed to its lower leverage and stronger financial health, with a long-term target leverage ratio of 1.75 to 2.0 [5]. Group 3: Future Outlook - If AT&T's balance sheet continues to improve, it may be positioned to return more cash to shareholders through dividend increases and stock buybacks, potentially becoming a more attractive option for income investors [6].