There’s plenty of value in being a dominant player in an essential market such as telecommunications. AT&T ’s strategic 5G and fiber-optic expansion is positioning it for future growth.
The company is also looking to cut costs by $2 billion over the next couple of years to help additional value. While its debt levels are high, strong cash flow provides adequate coverage and the stock trades at just 9.8 times the company’s forward earnings forecast.
AT&T INC. (New York symbol T; www.att.com) is the largest wireless (cellphone) carrier in the U.S., with 115.4 million subscribers (excluding mobile devices such as tablets). It also has 6.1 million traditional phone customers and 15.35 million high-speed Internet users.
AT&T is now selling its remaining 70% stake in satellite TV provider DirectTV to private equity firm TPG Inc., which purchased 30% of that business in 2021. The company will receive $7.6 billion over five years. The sale will let AT&T focus on improving its 5G wireless and fibre-optic Internet networks.
In the quarter ended June 30, 2024, AT&T added 419,000 new mobility subscribers under long-term contracts (net of cancellations). Those new customers helped support revenue, although it fell 0.4% in the quarter, to $29.8 billion from $29.9 billion a year earlier. Due to network modernization efforts, including restructuring costs and accelerated depreciation on wireless network equipment, Earnings before unusual items fell 9.5%, to $0.57 a share from $0.63.
AT&T also had long-term debt of $125.4 billion as of June 30, 2024, which is a high 78.8% of its market cap.
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Value Stocks: High dividend looks sustainable with the AT&T’s stock remaining cheap
In response to a recent outage of cellular service, caused by a faulty software upgrade, AT&T will give its customers each a $5 credit on their future bills. In all, the credit will cost the company roughly $140 million.
Despite this added cost, the company will probably earn $2.26 a share for all of 2025, and the stock trades at just 9.8 times that forecast.
AT&T continues to expand its ultrafast 5G wireless and fibre-optic Internet networks. It planned to earmark between $21 billion and $22 billion for network upgrades in 2024.
Even after those outlays, its free cash flow (regular cash flow less capital expenditures) will range between $17 billion and $18 billion this year. That will let it maintain the current dividend rate of $1.11 a share, which yields a high 5.0%; AT&T’s aggregate dividend payments will total roughly $8.3 billion in 2024. Improving efficiency will also cut $2 billion from its annual costs by mid-2026.
Recommendation in Dividend Advisor: AT&T Inc. is a buy.
