AT&T had an operating cash flow of $38.9 billion during 2012, the company spent $19.4 billion on CAPEX and other investing activities, which left $19 billion for the dividend that only cost the company $10 billion, leaving the company with extra cash to buy back stock. AT&T did have to borrow slightly to afford the whole buyback, but at current low rates this could be beneficial for the company.
As a REIT, Urstadt has to pay out the majority of its income to shareholders in order to keep its preferential tax treatment, so the dividend is only just covered by available cash flow. It appears that the Urstadt does not have much room for further payout growth, but as a REIT the company’s income will rise with inflation as it raises rental rates, so I can assume the company’s cash flow will have room for further dividend growth next year.
Aren’t There Companies with a better history out there?
Both AT&T and Urstadt have decent dividend histories, solid balance sheets and payouts that are well covered by cash flows, but there are better companies out there with longer payout histories and stronger balance sheets– Exxon Mobil Corporation (NYSE:XOM) for example. The problem is that Exxon’s payout is so attractive, that investors have been drawn in depressing its yield to an almost unattractive level.
| Company | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|
| ExxonMobil | 2.3% | 2.5% | 2.2% | 2.3% |
| AT&T | 6.5% | 6.2% | 5.9% | 5% |
| Urstadt | 6.3% | 6% | 5.3% | 3.9% |
| Inflation Rate | 2.7% | 1.5% | 3% | 2% |
Exxon Mobil Corporation (NYSE:XOM) has a much longer payout history than AT&T and Urstadt, the company also has a strong balance sheet and is very unlikely to fail and stop the payout–but because of this, investors have been drawn to the company, depressing its payout to unattractive levels. Assuming dividend investors want to achieve the rate of inflation plus 1 or 2% extra income their investment, AT&T and Urstadt have provided the best options during the past four years. Exxon’s yield was less than the rate of inflation during 2009 and 2011 and was only marginally above the rate of inflation during 2012.
Conclusion
With long dividend histories, strong balance sheets and cash flows that easily cover their higher than average dividend yields Urstadt and AT&T look to be perfect picks for the conservative dividend investor.
The article Stocks for the Dividend Investor, Part 1; The Conservative Investor originally appeared on Fool.com is written by Rupert Hargreaves.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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