Investors are not supposed to get emotionally attached to stocks. But I have to admit, I’ve always rooted for AT&T (NYSE: T). In fact, it’s a current recommendation in The Oxford Income Letter portfolio.

[ad#Google Adsense 336×280-IA]But as I wrote six months ago, it’s also the first stock I ever owned.

My grandfather bought shares for me when I was born, back when AT&T’s monopoly earned it the nickname “Ma Bell,” short for “Mother Bell.”

Last November, AT&T received a “C” rating for dividend safety.

Declining free cash flow in 2013 and 2014 resulted in a payout ratio that was too high.

Trending Upward

But things have changed since last year.

Importantly, the company reported strong free cash flow growth in 2015. As a result, its payout ratio dropped from just over 100% in 2014 to 61%. That 61% level is well within my comfort range. A payout ratio of 75% or less gives me confidence that the dividend is not in jeopardy.

Even better, free cash flow is projected to continue moving higher in 2016, thanks to the company’s acquisition of DirecTV.

AT&T has raised its dividend every year since 1984, when it was broken up by the federal government and ordered to spin off its regional telephone companies.

Three Solid Decades

That was a long time ago. Back then, we were lining up to see box office smashes like Indiana Jones and the Temple of Doom, Ghostbusters, The Terminator, Footloose, and The Karate Kid (what a great year for movies).

We listened to Prince’s “When Doves Cry,” Tina Turner’s “What’s Love Got to Do With It” and Bruce Springsteen’s “Born in the U.S.A.” on a Walkman (or brand-new Sony Discman).

We read newspapers to keep up with current events, pop culture and sports. Like Soviet leader Yuri Andropov’s death and Konstantin Chernenko’s succession. (Anyone remember either of them?)

Or when the Boston Celtics beat the Los Angeles Lakers in one of the greatest NBA finals in history. Or when the Union Carbide Bhopal disaster occurred.

All of that was a long time ago. Since then, AT&T has built a strong history of dividend raises, which has paid off for investors. I look for companies with this kind of record because it shows commitment to the dividend and management’s understanding of its fiduciary duties.

Ultimately, that three-decade-long track record of raising the dividend every year, along with improving free cash flow and a lower payout ratio, has earned AT&T an upgrade to our highest safety rating.

Dividend Safety Rating: A

Good investing,

Marc

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Source: Wealthy Retirement