If you are looking for a good dividend you want to consider overall yield, dividend growth, and the company’s payout ratio. All these factors determine the quality of a good dividend, and ideally you will want one that meets your requirements in all those areas.
I would consider a yield of over 4% to be good but I normally look for yields of 5%. However, a 4% yield that has a history of strong growth could easily outpace a 5% dividend with no growth, which is why dividend growth is an important consideration as well.
Payout ratio is a very important consideration as well, because a very high payout ratio might jeopardize the dividend and could result in a reduction or complete elimination of the dividend.
AT&T Inc. (NYSE:T) is an excellent, safe stock that offers a yield of over 5% and has shown growth over the years as well. In four years the company’s dividend has grown by 8.88%, which is not great but also not nothing. That growth rate averages to about 2.15% a year, and would require you to wait 33 years for the dividend to double. However, a high yield dividend that also has a high growth rate would likely result in an unsustainable payout ratio. AT&T has been paying out approximately 60-66% of its free cash flow for the past couple years, suggesting the dividend is safe.
AT&T is a very strong company and it is likely that just by holding the stock long enough you will obtain a positive return as the share appreciates in value. Especially if the merger with Time Warner goes through, AT&T could be a stock poised to take off.
