AT&T (T) has announced 2.4% increase in the quarterly dividend to 42 cents per share (from 41 cents per share). Annualized, this increases the dividend to $1.68 per share (equating to roughly 6% yield) from the current dividend of $1.64 per share. However, the rate of increase has been the smallest since 2001 when the company raised dividend by 1%. 

The quarterly dividend is payable on Feb 1, 2010, to shareholders of record as of Jan 8, 2010. The dividend increase is expected to boost annual payout by $236 million, based on the company’s current outstanding shares. 

This represents AT&T’s 26th consecutive annual dividend increase and underscores its commitment to offer incremental returns to its shareholders leveraging a sound financial position. Significant cost savings continues to facilitate strong free cash flow, supporting attractive dividend payouts and share repurchases. 

AT&T and its archrival Verizon (VZ) have been reasonably successful in weathering the weak economic condition on the back of their operational scale and commanding position in wireless vis-à-vis other leading national carriers. Verizon raised its quarterly dividend by 3.3% in Sep 2009 to 47.5 cents per share, increasing annual payout by 6% to $1.90 per share. 

AT&T remains challenged by a decelerating wireline voice business which continues to weigh on its revenue and earnings. However, healthy gains across strategic growth areas such as wireless, broadband Internet and video continue to buffer the decline in wireline. Growth in wireless has been strongly backed by soaring iPhone sales. Moreover, U-verse video service is helping the company to counter increasing competition in the traditional wireline business. 

The company’s continued efforts to maximize shareholder returns is encouraging, especially considering the current volatile macroeconomic backdrop which has prompted many companies from different industries to reduce or suspend dividend payments to conserve cash. 

AT&T is pursuing a number of strategies to tap opportunities in the wireless data market. To further increase network speed, the company is currently pursuing multiple technology upgrades including the deployment of HSPA 7.2 technology based 3G networks. Moreover, AT&T recently acquired regional telecom carrier Centennial Communications to expand its wireless coverage. 

We remain encouraged by AT&T’s ongoing efforts to upgrade its wireless network and acquisition initiatives to expand customer base and coverage zones as US subscriber population reaches maturity. Downside risks are primarily associated with the weakening demand for wireline services, impacted by recession and heightened competition.
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