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5 Dow Dividend Stocks to Beat the S&P

AT&T

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2013 is turning out to be a pretty tepid year for AT&T (T). The $50 billion communications stock is effectively flat year-to-date, ignoring the ups and downs along the way. But investors' returns haven't exactly been zero. AT&T's massive dividend payout currently works out to a 5.06% annual yield. That dividend gives it top billing on our list today.

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AT&T is the incumbent telephone company in many parts of the country, but the firm is better known for its AT&T mobility business, which boasts more than 92 million cellular subscribers. That customer Rolodex makes AT&T the second-largest wireless carrier in the U.S. AT&T created a coup when it began offering the iPhone in 2007, enjoying nearly four years of exclusivity with the extremely popular device. Today, approximately 40% of AT&T's customers are iPhone users, a heavy skew towards the higher revenues per user that smartphone customers bring in. As AT&T continues to convert its existing cellular users to smartphones, margins and sales should still have room to expand.

While AT&T's cellular business may have more visibility, investors shouldn't forget about the firm's legacy fixed line business. Those landlines provide significant cash flows, and the infrastructure offers a reasonably deep economic moat. Bundled packages provide a growth platform for AT&T's fixed lines, even if they're less exciting than mobile. With a payout ratio of just 50%, AT&T has another $10 billion in free cash flows that it can potentially use to reward investors.

Even though AT&T trades for a relatively hefty earnings multiple, its dividend payout more than makes up for the appearance of a high price tag on shares.

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