Dividendology
Oct 26, 5:02 PM
AT&T common stock or preferred shares: which offers the better opportunity right now?
• Common stock (
$T ): roughly 5.3% yield
• Series A and C preferreds: roughly 7.7% yield
The common stock obviously offers greater long-term upside if AT&T grows cash flow and investors assign it a higher valuation.
But with SpaceX potentially threatening longer-term cash flows, the preferred shares could offer a more attractive risk-to-reward for income investors.
Look at the dividend coverage in the image.
Using the
$18 billion 2026 free cash flow forecast shown, AT&T’s Series A and C preferred dividends require just
$143.1 million annually.
That’s approximately 126x coverage and a payout ratio of only 0.8%.
The common dividend, meanwhile, has approximately 2.37x coverage.
Still substantial, (since they cut their dividend a few years ago), but the preferred payout is a much smaller cash obligation and ranks ahead of the common dividend.
Of course, these are fixed-rate perpetual preferreds, so another sharp rise in Treasury yields could hit their prices hard.
