Posted: Tuesday, April 23, 2013 3:16 PM ET
AT&T (T) shareholders currently enjoy a 4.7% annual dividend yield, but there is reason to fear that the company will soon be forced to reduce its dividend payments.
With the current near-zero interest rate policy at the Federal Reserve, high-yielding stocks such as AT&T have been strong performers in recent years. This can be seen in AT&T's stock gaining 24% over the past twelve months, which in turn lowered its yield from 5.6% to its current 4.7%.
Despite the drop in yield, its current payout makes it the highest-yielding component of the DOW.
However, going forward, the company may find it tough to continue returning the amount of money its shareholders have grown accustomed to. Last year the company returned $23 billion to investors. $10 billion of this came in the form of dividends, with the remaining $13 billion coming in stock buybacks.
This sounds great, except for the fact that the $23 billion was $4 billion over the company's free cash flow for the year.
If this trend continues, the company is going to be forced to make some tough decisions. It can raise cash through selling off some assets, lower its dividend payment, or slow its stock buyback plan.
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