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Why AT&T May Have Just Become an Even Better Dividend Stock to Own
If your priority is to receive a stable and recurring dividend, a good idea is to focus on businesses that aren’t trying to do too much. When a company tries to grow its business while also paying a dividend, it can be difficult to juggle both.
Good examples of that are Intel and Walgreens Boots Alliance. Intel is trying to build a chip foundry business, which has proven to be a significant challenge, ultimately resulting in the tech company suspending its dividend. Walgreens, meanwhile, has been trying to expand into healthcare, which is no easy task, either. And it ended up slashing its payout nearly in half at the start of the year.
When it comes to dividends, the best stocks to own are the ones whose businesses try to keep things simple. For a while, AT&T (NYSE: T) was looking like it might be a bad dividend stock when it was trying to grow aggressively into the streaming business with its acquisition of Time Warner. When it eventually gave up on that idea, it became a better dividend stock.
Now, with its latest move, it may be an even better one. Let’s see why.
AT&T is selling its stake in DirecTV
Last month, AT&T announced it would be selling the 70% stake it has in DirecTV to TPG, a private equity firm, for $7.6 billion. The move gets AT&T out of a competitive pay-TV business. At a time when viewers have more options than ever before for content, including myriad streaming options, simplifying its operations and focusing on its core telecom business could be a huge win for the company and AT&T shareholders.
Plus, the influx of cash can go a long way in helping AT&T strengthen its balance sheet by paying off some debt. As of the end of June, the company had a whopping $130.6 billion in debt on its books. Telecom companies normally carry a lot of debt on their books due to the capital-intensive nature of their operations, but with interest rates remaining high, that has been a reason for investors to be extra cautious with respect to these types of stocks. By injecting some additional cash into its operations, AT&T can reduce some of its debt and thus bring down some of that risk.
Could this pave the way for a dividend increase?
One thing investors may want to keep watching for is whether AT&T increases its dividend. The company is arguably already in a strong enough position to justify a boost to its payout, and now the sale of its stake in DirecTV might incentivize management to give investors more of a reason to buy the stock as it narrows its business.
Since spinning off WarnerMedia and adjusting its dividend in 2022, AT&T hasn’t increased its payout, and a hike may be overdue. Historically, AT&T was known to be a dividend growth stock and it may be waiting for the right time to announce an increase and to start that cycle again. Many telecom stocks often raise their payouts to give investors a reason to buy and hold.
Currently, AT&T has a payout ratio of 64% and over the trailing 12 months it has accumulated $21 billion in free cash flow, which is far more than the $8.2 billion it has paid out in dividends during that stretch. The dividend looks incredibly safe today and the sale of DirecTV could allow AT&T to better allocate resources to its fiber business and grow the dividend.
Should you buy AT&T stock today?
AT&T’s stock has rallied 27% this year as investors have grown more bullish on its future given its stronger results of late. Its yield has shrunk as a result, and is now down to around 5.2%. However, that’s still well above the S&P 500 average of 1.3%. As interest rates come down, more investors could load up on this high-yielding stock, which means this high of a yield may not last for long.
If you want a good dividend, then AT&T can make for a solid stock to add to your portfolio. By simplifying its operations and adding some cash, it looks like a much safer income investment to buy and hold. And it may only be a matter of time before the company announces an increase to its payout.
Should you invest $1,000 in AT&T right now?
Before you buy stock in AT&T, consider this:
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Why AT&T May Have Just Become an Even Better Dividend Stock to Own was originally published by The Motley Fool
The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.
Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.
Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.
Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.
While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.
The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.
Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.
While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:
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Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.
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Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.
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Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.
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Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.
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Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.
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Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.
The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.
There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.
No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.
Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.
Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.
Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”
Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.
Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”
Lumen will report third quarter 2024 results on November 5, 2024.
Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).
Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.
Image via Shutterstock
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This article Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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