Maximizing Passive Income: High-Yielding Dividends from AT&T and Realty Income

4 min read | September 03, 2024 12:03 PM PDT | By Team Kalkine Media

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AT&T and Realty Income offer stable and high dividend yields, providing opportunities for consistent passive income.
AT&T, a leader in telecommunications, maintains a forward dividend yield of 5.6%, supported by its strong cash flow and efforts to reduce debt.
Realty Income, known as The Monthly Dividend Company, offers a 5.08% dividend yield, benefiting from its extensive real estate portfolio and reliable income stream.

Dividend-paying companies distribute a portion of their earnings to shareholders on a regular basis, often quarterly or monthly. These dividends are appealing as they offer a steady stream of passive income. Many of these companies are well-established, showcasing both stability and growth. Among them, high-yield dividend payers are particularly attractive for generating consistent income. Here are two notable options with impressive dividend yields.

AT&T: Sustaining a 5.6% Dividend Yield

AT&T has been a dominant force in the telecommunications industry, renowned for its robust brand, extensive infrastructure, and commitment to rewarding shareholders. The company’s offerings span across wireless, broadband, and pay television services, and it has ventured into media and entertainment with notable acquisitions.

With a market value of $142.7 billion, AT&T has seen its stock rise by 19.4% year-to-date, outpacing the S&P 500 Index’s increase of 17.6%. The company's dividend yield, historically one of the highest in the telecommunications sector, remains a significant draw. Currently, AT&T boasts an annualized forward dividend yield of 5.6%, well above the sector average of 2.6%.

Despite the appealing yield, AT&T's growth strategy has led to a significant accumulation of debt. By the end of the second quarter, the company had reduced its net debt to $126.9 billion after paying off $2.2 billion in long-term obligations. In the same period, AT&T generated $4.6 billion in free cash flow (FCF) and projects an FCF range of $17 billion to $18 billion for 2024.

The company's ongoing efforts to manage debt and sustain its dividends are supported by its growing earnings and FCF. With a forward payout ratio of 48.7%, AT&T’s dividends appear sustainable, with potential for future growth. In the second quarter, adjusted earnings per share (EPS) slightly decreased to $0.57 from $0.61 in the previous year. AT&T anticipates full-year adjusted EPS to be between $2.15 and $2.25, with a projected increase to $2.26 in 2025.

Realty Income: Delivering a 5.08% Dividend Yield

Realty Income Corporation (NYSE:O) often referred to as The Monthly Dividend Company, is a unique real estate investment trust (REIT) with a focus on free-standing, single-tenant commercial properties. The company leases these properties to a diverse range of industries and holds a portfolio that spans 15,450 properties across the U.S., the United Kingdom, and Europe.

With a market capitalization of $54 billion, Realty Income has gained 7.6% year-to-date. The company is known for its consistent and reliable dividend payments, making it a preferred choice among income-focused investors. Realty Income operates under a triple-net long-term lease structure with a weighted average lease term of 9.6 years, ensuring a stable and predictable income stream.

As a REIT, Realty Income is legally required to distribute 90% of its earnings as dividends. For the quarter ending June 30, the company’s adjusted funds from operations (AFFO) increased by 6% year-over-year to $1.06 per share. Additionally, Realty Income increased its monthly dividend by 1.6% to $0.777 for the quarter, marking 32 consecutive years of dividend hikes and earning its status as a Dividend Aristocrat.

The company’s forward dividend yield of 5.08% surpasses the real estate sector average of 4.46%. While the forward FFO payout ratio of 74.03% is slightly elevated, it remains sustainable given the expected growth in AFFO. Analysts anticipate Realty Income's FFO to grow by 3.78% in 2024 and 4.4% in 2025, further supporting its ability to maintain and possibly increase dividend payments.

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