Why AT&T and IBM Are Solid Picks for Dividend Investors amid Market Volatility

In a world fixated on tech stocks and market volatility, dividend stocks might seem like the less glamorous sibling. However, for the savvy long-term investor, these stocks remain a bastion of stability and consistent returns. Today, we put the spotlight on two promising dividend stocks that warrant your attention: AT&T (NYSE: T) and International Business Machines (NYSE: IBM).

Steady Growth in Wireless and Fiber Optics

Despite the fierce competition in the telecommunications sector, AT&T (NYSE: T) has been holding its ground remarkably well. While its competitor Verizon has seen a decline in wireless subscribers, AT&T continues to grow its base. In the first quarter alone, AT&T added around 350,000 net postpaid phone subscribers. Moreover, postpaid phone churn fell to its lowest in over two years, clocking in at just 0.72%.

AT&T's fiber optics business is also flourishing. By the end of the first quarter, the company had 8.6 million fiber subscribers, with an increase of 252,000 over the period. With ambitious plans to expand its fiber network, AT&T is setting the stage for long-term growth. The aim? To pass 50% more locations than previously planned, thus solidifying its presence in the fiber market.

Financially, AT&T expects its free cash flow to range between $17 billion and $18 billion this year. The stock remains reasonably priced, trading at just seven times the midpoint of this cash-flow forecast. The dividend is also appealing, with a quarterly payout of $0.2775 per share, translating to a yield of around 6.4%. Although the company hasn’t raised its quarterly dividend since cutting it post-WarnerMedia spinoff, it has plans to reach its debt reduction targets by mid-2025. Post this milestone, dividend hikes or share buybacks could be in the cards.

AI for the Enterprise

Meanwhile, over at IBM (NYSE: IBM), the tech giant is making strategic moves to become the leading platform for enterprise AI. A crucial part of its strategy includes partnerships with major cloud providers and tech companies, which drive billions in annual revenue. IBM’s AI platform, Watsonx, is integrated into its partners’ ecosystems, enhancing its reach.

In addition to AI, IBM’s consulting division offers end-to-end solutions for clients who need more than just software. This division has been instrumental in IBM’s AI-related business growth, providing holistic services that bundle IBM’s offerings with those of its partners. Although AI is still a small slice of IBM’s revenue pie, it has the potential to accelerate significantly in the future.

Currently, IBM is enjoying consistent, albeit modest, revenue and free-cash-flow growth. The company projects mid-single-digit revenue growth, excluding currency impacts, and aims for about $12 billion in free cash flow for this year. While IBM’s recent dividend increase was a modest less than 1%, raising it to $1.67 per share, it still yields a solid 3.9%. With its dividend consuming roughly 50% of free cash flow this year, faster dividend growth will likely require an uptick in free cash flow—an area where their AI ventures could make a significant impact.

Final Thoughts

For investors willing to be patient, both AT&T and IBM offer robust dividends and solid growth potential, backed by strategic investments in key business areas. While these might not ignite the same excitement as the latest AI-driven tech stock, they provide a reliable source of income and potential for capital appreciation. So, if you’re considering bolstering your portfolio with dividend stocks, these two could be worth a closer look.