Better High-Yield Dividend Stock to Buy Now: AT&T vs. Altria Group

Investors looking for high-yield dividend stocks that can raise their payouts further may want to look at the telecommunications and tobacco industries.

Shares of telecommunications giant AT&T (T -0.36%) offer an eye-popping dividend yield above 6% at recent prices. Altria Group (MO -2.09%) has been offering an even higher yield to investors willing to take a chance on the U.S.-based tobacco company.

To find out which of these two stocks is the better buy, let's start by looking at what has their prices under pressure lately.

AT&T

In late 2022, AT&T slashed its dividend payout to compensate for the spinoff of its media assets. The company hasn't raised its quarterly payment yet, and at recent prices, it offers a 6.3% yield, which is 363% more than you'd receive from the average stock in the S&P 500 index.

AT&T froze its dividend to reduce a debilitating debt load that stood at $128.7 billion at the end of March. This is a lot, but it's about $6 billion less than the company had on its books a year earlier.

Now that most of AT&T's 5G network is already built, capital investments are declining. This lets the company hurl even more cash at its debt pile.

In the first quarter, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 4.3% year over year to $11 billion. The company finished the first quarter with net debt that was 2.9 times adjusted EBITDA over the trailing-12-month period.

AT&T is confident that it can reach a net debt-to-adjusted EBITDA ratio of 2.5 in the first half of next year. The company hasn't made any specific promises, but it will most likely begin raising its quarterly payout again once it hits this debt reduction goal.

The pace of AT&T's upcoming dividend payout increases could be faster than you'd expect from an established telecommunications giant. Phone sales were down significantly, but the company's mobility business still managed to raise first-quarter operating income by 3.1% year over year.

AT&T's fiber-optic broadband service has added 1.1 million subscribers over the past year to reach 8.6 million in total. For customers who aren't near a fiber-optic cable, the company launched a fixed wireless service last year. The new fixed wireless service added 110,000 new subscribers in the first quarter.

Altria Group

Altria Group is the tobacco company that sells the leading Marlboro brand in the U.S. market. At recent prices, the stock offers an eye-popping 8.6% yield.

Cigarette sales have been falling for decades, and the recent proliferation of disposable nicotine vaporizers has accelerated the decline. Altria Group reported cigarette shipment volumes declined 10% year over year in the first quarter.

Combustible cigarette sales are down, but Altria Group can always raise prices for its powerful Marlboro brand. Plus, it's been transitioning smokers to smokeless products. Despite shipping 10% fewer cigarettes, total first-quarter revenue net of excise taxes declined by just 1% year over year.

Altria also owns about 8.1% of Anheuser-Busch InBev, even though it sold enough shares of the beverage company to gain $2.4 billion in March. Altria Group intends to return the proceeds to investors in the form of share buybacks.

The better buy?

Investors who have already retired might find Altria Group and its ultra-high dividend yield more attractive than AT&T stock. While it offers a high yield now, the dividend payout raises you'll see from the tobacco company in the years ahead are likely to be very small.

The Food and Drug Administration has stepped up enforcement of its flavor ban for nicotine-containing vaporizers. This could push up sales of Altria Group's new e-vapor product, NJOY, and offset rapidly dropping cigarette sales.

While there's a good chance that Altria Group can return to top- and bottom-line growth, AT&T is significantly less risky. With the launch of its fixed wireless service, AT&T is no longer losing broadband customers. Plus, earnings have risen significantly in recent quarters.

AT&T probably won't begin raising its payout again until next year. Over the long run, though, it will probably deliver more passive income to patient investors. That makes it the better dividend stock to buy now.