By Ian Salisbury
AT&T's earnings had nothing to get excited about. But boring may be better for investors who want steady income, without having to worry about surprises. That may make AT&T be a better bet than Verizon and T-Mobile -- the former in turnaround mode, the latter reportedly considering a full merger with Deutsche Telekom.
AT&T stock was up 0.6% Wednesday, after beating Wall Street forecasts for profit and the number of cellphone customers it signed up. Operating earnings of 57 cents a share beat the median forecast for 55 cents, while revenue climbed 2.9% to $31.5 billion.
While shares of AT&T posted modest gains, a rumored link up of T-Mobile and Deutsche Telekom sent shares of both companies down sharply, with T-Mobile falling 4.3% and Deutsche Telekom, which already owns 53% of the U.S. mobile carrier, down more than 6%.
For dividend investors the deal has a certain appeal, combining T-Mobile's rapid growth with Germany's disciplined, payout-oriented corporate culture. But most U.S. investors don't necessarily want exposure to slower-growing European markets, noted Citi analyst Michael Rollins, in a report Tuesday. "We believe U.S. investor interest in T-Mobile and its valuation have benefitted by being a pure-play US communications provider," he wrote.
Verizon's higher dividend and turnaround could pay off and the stock has led the telecom pack this year. But its 6% dividend yield is high, reflecting skepticism in CEO's Dan Schulman's turnaround efforts. The stock rallied nearly 12% in January, when it reported adding 616,000 net new postpaid subscribers, blowing past Wall Street forecasts for the 417,000 Wall Street expected. However, the next test will come on April 27, when it reports first quarter earnings.
For most dividend investors, AT&T, which yields 4.4%, is a steadier bet. Wednesday's earnings report wasn't without blemishes. They may have been what sent shares down about 3.5% in early trading, before they rallied midmorning.
AT&T said first-quarter free cash flow fell to $2.5 billion from $3.1 billion in the previous-year quarter. That reflects higher capital expenditures: The company has been accelerating its spending on fiber optics, which deliver high-speed internet hookups to U.S. households.
While that spending could boost long-term growth, it leaves less wiggle room for AT&T's quarterly dividend of 28 cents a share. That dividend costs about $2 billion a quarter. Meanwhile AT&T has also said it plans to spend about $2 billion a quarter on buybacks this year, suggesting a total of about $4 billion that the carrier is committed to payout out to shareholders each quarter.
Given those commitments, it isn't hard to see what investors balked when they saw just $2.5 billion in first-quarter free cash flow.
But long-term investors shouldn't read too much into a single quarter's numbers. In the same earnings release Wednesday, AT&T reiterated its forecast for $18 billion free cash flow for 2026, more than enough to cover its $16 billion annual dividend/buyback commitment. And there is little reason to assume it can't deliver. Despite the latest quarter's results, the company generated well above $4 billion in free cash flow in each of the previous three quarters.
Write to Ian Salisbury at ian.salisbury@barrons.com
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(END) Dow Jones Newswires
April 23, 2026 04:00 ET (08:00 GMT)
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