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AT&T Inc. T — the dividend aristocrat that hiked its dividend for the past 35 consecutive years — took the investor community by surprise when it unveiled plans to reduce its dividend payout. The announcement followed the carrier’s definitive agreement with Discovery, Inc. DISCA to spin off its media assets and merge them with the complementary assets of the latter to form a standalone global entertainment company amid continuous cord-cutting in U.S. households.
Post completion of the deal, AT&T will receive $43 billion in a combination of cash and debt securities and will own 71% of the new entity, while Discovery will own the remainder. The transaction is expected to enable the carrier to trim its huge debt burden and focus on core businesses. AT&T has been divesting its non-core assets to increase its liquidity and shed excess baggage to be nimbler. Notably, the company had a dividend payout of 65% in first-quarter 2021. However, post divestment, the carrier aims to reduce this payout to 40-43% as it intends to utilize about $8 billion of annual cash flow for dividends — down from $15 billion last year.
Improving GDP: Adding Fuel to Growth Engine
Meanwhile, with gradual resumption of normal business activities that were largely suspended due to the coronavirus-induced lockdown restrictions, the U.S. economy grew 6.4% in the first quarter of 2021 — the second fastest GDP growth since third-quarter 2003, buoyed by 10.7% rise in consumer spending. This followed a 4.3% increase in the fourth quarter, signifying a gradual revival in the post-pandemic era. As more workers return to the labor force with the mass rollout of vaccines and reopening of facilities, pent-up demand from steady stimulus checks is likely to amplify the economic recovery.
This marks a significant turnaround from the past few quarters, when corporate sector resorted to various cost-cutting measures including furloughs, layoffs and reduction in discretionary expenses in order to weed off the liquidity crisis. Some other firms looked beyond the short-term funding avenues, such as revolving lines of bank credit, to bridge temporary cash shortfalls. Some others employed one of the most common and widely followed trend to perk up the liquidity position during recessionary conditions — dividend cut or suspension of dividend payment until the overall situation improves. Although a bulk of the firms across diverse sectors has increasingly followed the drift, many have chosen to swim against the tide and continued rewarding shareholders with steady dividend payments.
Let us dig deep into three such stocks to gauge the underlying metrics that reflect their inherent financial strengths.
Target Corporation TGT: This retailer has evolved from just being a pure brick-&-mortar retailer to an omni-channel entity. The company has been making investment in technologies, improving websites and mobile apps and modernizing supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players. Markedly, Target plans to make an investment of about $4 billion annually during the next several years to ramp up store openings and remodels, scale up fulfillment services and enhance supply chain capabilities. It continues to lay emphasis on developing flexible format stores to penetrate deeper into urban and suburban areas. This approach has helped the company to augment sales without substantial capital investment. Thanks to its one-stop shopping destination, customers have opted for its multi-category assortment of owned and exclusive brands.
The company has hiked its dividend each year for the past 48 years and currently boasts a dividend yield of 1.21% with a quarterly payout of 68 cents. Target paid dividends of $340 million in the first quarter. This reflected an increase of 3% in the dividend per share. Notably, Target recorded stellar first-quarter fiscal 2021 performance, wherein both the top and the bottom lines surpassed the Zacks Consensus Estimate and grew year over year. Comparable sales increased for the 16th successive quarter and gained from strength in both store and the digital channel. Target has a long-term earnings growth expectation of 13.3%. It delivered an earnings surprise of 62.1%, on average, in the trailing four quarters and has a VGM Score of B. Target is housed within the Retail – Discount Stores industry, which carries a Zacks Industry Rank #91, which places it among the top 36% of more than 250 Zacks industries. The stock’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Target currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rankstocks here.
Motorola Solutions, Inc. MSI: This leading communications equipment manufacturer has hiked its quarterly dividend each year over the past 10 years. Motorola currently has a dividend payout rate of 35.9%. As a leading provider of mission-critical communication products and services worldwide, Motorola has ensured a steady revenue stream from this niche market. It intends to boost its position in the public safety domain by entering into alliances with other players in the ecosystem.
Despite coronavirus-induced adversities, Motorola reported solid first-quarter 2021 results with record sales driven by strong demand pull across video security and services, land mobile radio products and related software. Motorola has a long-term earnings growth expectation of 9%. It delivered an earnings surprise of 11.6%, on average, in the trailing four quarters and has a VGM Score of A. Motorola is housed within the Wireless Equipment industry, which carries a Zacks Industry Rank #113, which places it among the top 45% of more than 250 Zacks industries. Motorola currently carries a Zacks Rank #3 (Hold).
3M Company MMM: This diversified conglomerate remains committed to rewarding its shareholders handsomely through dividend payments and share buybacks. In the first quarter of 2021, the company paid out dividends totaling $858 million to its shareholders and bought back shares worth $231 million. Notably, the quarterly dividend rate was hiked by 1% in February 2021 and it currently stands at $1.48 per share. The company has consecutively increased dividends over the past 57 years and currently has a dividend payout rate of 62.9%. 3M has benefited from a well-diversified portfolio and sustained focus on innovation and transformation. In addition, the company is planning to strengthen its marketing capabilities by investing in global programs, using digital platforms and available data. The moves are likely to help 3M benefit from the growing opportunities in home improvement, healthcare, e-commerce, automotive electrification and personal safety arenas.
3M recorded healthy first-quarter results on broad-based growth across all segments. This Zacks Rank #3 stock has a long-term earnings growth expectation of 9.5%. It delivered an earnings surprise of 9.9%, on average, in the trailing four quarters and has a VGM Score of B. 3M is housed within the Diversified Operations industry, which carries a Zacks Industry Rank #103, which places it among the top 41% of more than 250 Zacks industries.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
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AT&T Inc. (T) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
3M Company (MMM) : Free Stock Analysis Report
Discovery, Inc. (DISCA) : Free Stock Analysis Report
Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
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