AT&T

[EricL]

I like AT&T a lot at a 6.3% yield. The payout ratio has steadily been dropping with the 2% raises in recent years, and with the TWX acquisition now complete, I'm hopeful that EPS growth will pick up and the company can begin paying down some debt.

Here is some commentary on the dividend from Randall Stephenson at a recent investors conference:

Quote:Comfort of the dividend? We came into this year and committed that we would do somewhere in the order of $21 billion of free cash flow. That's before Time Warner. And so yes, we took the drop on video in 2017. The cost structure work that Donovan and team are doing, it's a profitability equation. That's not what keeps me awake at night. It's how do you work this transition of the products from the traditional linear to the stream products. But we are still committed to $21 billion range of free cash flow for the year. We also -- if you close Time Warner, the $21 billion goes up by order of magnitude. To make your own forecast, I have no better intelligence than you on what that is for the rest of the year, but $23 billion, $24 billion of free cash flow. We had 3 or 4 years ago -- 4 or 5 years ago as a result of a lot of the investments we had made in acquisitions, the dividend payout had moved up to a level that, candidly, I wasn't comfortable with. So we have been on an aggressive effort to work the dividend payout ratio down. Mission accomplished.

We're at now a level in terms of dividend payout ratio that I'm very, very comfortable with. And with Time Warner, it goes down even lower. In fact, it gets to levels we haven't seen in a long time with Time Warner. So any concerns with the dividend, I kind of set those aside. The ability to finance the dividend is terrific. With Time Warner, we will lever up to acquire Time Warner. Our debt-to-EBITDA ratio gets up to levels that you'd like to get worked down. By the first year after Time Warner closes, we'll be down to 2.5x EBITDA -- debt-to-EBITDA. Within 4 years, back to our historical levels. So the financial profile of the business is good. Shoring up the video profitability, we feel really good about that. Good line of sight to doing that. Cash flows continue to be strong and feel really good about where the business is.