AT&T Inc (NYSE:T), once a darling for blue-chip investors, is currently around $16, $3 above the 52-week low. Despite the telecom giant’s beleaguered stock price, there may be an opportunity for investors to capitalize on both potential capital appreciation and its dividends.
This summer, AT&T CFO Pascal Desroches reassured investors about the company’s financial health at the Bank of America Corp (NYSE:BAC) C-Suite Technology, Media and Telecommunications Conference.
Desroches reiterated AT&T’s free cash flow target of $16 billion or more for 2023. The projected cash flow, combined with AT&T’s trading at near-historic lows, may present an appealing opportunity for yield-seeking investors.
With the current dividend yield at around 6.85%, how can an investor earn $500 per month from the stock?
The monthly target of $500 translates to $6,000 per year ($500 x 12 months).
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Dividing the $6,000 by AT&T’s 6.85% dividend yield gives us: $6,000 / 0.0685 = $87,591.24.
So, to earn $500 a month, an investor would need to own $87,591 worth of AT&T or 5,410 shares.
Remember, while AT&T’s stock price is near multi-decade lows, potential capital gains could supplement its dividends.
Assuming a more modest goal of $100 monthly ($1,200 annually), we do the same calculation: $1,200 / 6.85% = $17,518.25, or 1,082 shares.
Note that dividend yield can change on a rolling basis, as the dividend payment and the stock price both fluctuate over time.
The dividend yield is calculated by dividing the annual dividend payment by the current stock price. As the stock price changes, the dividend yield will also change.
For example, if a stock pays an annual dividend of $2 and its current price is $50, its dividend yield would be 4%. However, if the stock price increases to $60, the dividend yield would decrease to 3.33% ($2/$60).
Conversely, if the stock price decreases to $40, the dividend yield would increase to 5% ($2/$40).
Further, the dividend payment itself can also change over time, which can also impact the dividend yield. If a company increases its dividend payment, the dividend yield will increase even if the stock price remains the same. Similarly, if a company decreases its dividend payment, the dividend yield will decrease.
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