To The Moon

$AT&T Inc(T)$ as a stock choice for dividend-focused investors. Historically, AT&T was known for its reliable dividends, making it a popular pick for those looking for steady income.

Stock Price

AT&T's dividend cut in 2021 had a notable impact on its stock price. Known for its strong dividend yield, AT&T has traditionally attracted many income-focused investors. However, as part of its restructuring and debt-reduction strategy after the WarnerMedia spinoff, AT&T slashed its dividend by about 47% in 2022. This reduction took the dividend from $2.08 to around $1.11 per share, resulting in a yield drop from over 8% to about 4%—a big shift for investors relying on this steady income stream

In 2021 November 12 Investors reacted sharply to the news, as AT&T's stock fell by approximately 6% shortly after the announcement. The cut was seen as a necessary but unpopular move to help AT&T focus on its core telecommunications business, free up cash for debt reduction, and invest in 5G and fiber initiatives. Though the cut aims to strengthen AT&T's long-term financial health, many investors view it as a negative indicator of the company's growth outlook.

Re-bounce

However at the end of 2023 AT&T manage to turn around with their earning posted relatively steady quarterly earnings per share (EPS), reflecting both the challenges and growth in different segments of its business.

For Q1 2023, AT&T reported an adjusted EPS of $0.60. This performance was supported by solid postpaid wireless additions, fiber growth, and improved operating efficiencies, despite slight declines in traditional wireline services.

In Q2 2023, AT&T's adjusted EPS was $0.63, primarily driven by strong wireless service revenues and higher ARPU (average revenue per user) in its postpaid segment. However, legacy wireline services and business segment challenges continued to weigh on overall revenue growth.

Q3 2023 adjusted EPS also came in at $0.63. The company saw growth in broadband, especially through AT&T Fiber, which offset some declines in legacy business and wireline revenues. AT&T’s strong focus on fiber expansion helped sustain its broadband revenue growth.

Finally, in Q4 2023, AT&T continued to see EPS stability, largely supported by increased customer retention and gains in postpaid services, though full details of EPS for Q4 2023 were only summarized in their year-end figures, estimating a total adjusted EPS for 2023 of around $2.41.

Challenges

AT&T Inc. showed resilience in its 2024 performance, despite challenges from declining business wireline revenues, which are down 20% due to reduced demand for legacy services. Its strong focus on growth in wireless services and fiber, however, drove positive results in other areas. The company reported a 4% increase in mobility service revenue and nearly 17% year-over-year fiber revenue growth. Its consumer wireline EBITDA grew by more than 8% in the latest quarter, fueled by these segments.

AT&T’s mobility segment added 403,000 postpaid phone customers in Q3 2024, and the postpaid phone churn remained low at 0.8%. Additionally, the company reduced its net debt by about $1.1 billion during the quarter, lowering its net debt-to-adjusted EBITDA ratio to 2.8 times. Free cash flow for the quarter reached $5.1 billion, contributing to a year-to-date total of $12.8 billion, supporting the company’s dividends and other capital needs​.

Q1 2024: AT&T reported an EPS of $0.60, exceeding analysts' expectations of $0.57.

Q2 2024: The company posted an EPS of $0.63, continuing its streak of beating estimates, which had been set at around $0.60.

Q3 2024: AT&T reported an EPS of $0.60, once again slightly surpassing expectations of $0.57, while its revenue for the quarter came in at $30.2 billion, though this was slightly below estimates.

Q4 2024 (forecasted): Analysts expect EPS to range around $0.51 based on recent estimates, with the results anticipated in January 2025.

Competitive 5G Market Throughout the year, AT&T's earnings have been supported by growth in its 5G and fiber subscriber base, though the business wireline segment saw some decline due to reduced demand for legacy services. The company's financial performance in 2024 highlights its transition focus on more profitable segments like 5G and fiber broadband while facing ongoing challenges in traditional telecom sectors.

Legacy Services Decline: AT&T's Business Wireline segment, which includes legacy voice and data services, has seen continuous revenue declines. This is largely due to the reduced demand for traditional phone and data services as businesses shift to cloud-based and digital communication solutions. As of 2024, revenue from these services declined by nearly 20%, reflecting ongoing pressure on legacy services that the company is actively trying to offset by investing in connectivity and fiber offerings.

High Debt Levels: AT&T has a substantial debt burden, partly due to its acquisitions over the past decade, including the costly acquisition and subsequent spinoff of WarnerMedia. Though AT&T has focused on debt reduction—achieving a net debt-to-adjusted EBITDA ratio of 2.8 in 2024—it still faces pressure to manage this debt while funding growth in 5G and fiber expansion.

These challenges underscore AT&T’s focus on transformation, from a traditional telecom company into a leaner, more technologically focused entity. It’s seeking to balance long-term investments with immediate financial obligations, a balancing act that will be essential for its future success.

Summary

Whether it’s a buy in 2024. AT&T's primary business is in wireless and broadband services, providing stable but low-growth subscription revenue. Despite challenges, the company recently demonstrated slight financial improvement with growing free cash flow, yet still faces high capital expenditure needs. Its wireless segment is competitive, requiring significant investment to maintain market position against rivals like Verizon and T-Mobile.

AT&T's current stock price hovers around $19.76, with an 11 P/E ratio and a 5.62% dividend yield. Though AT&T generates significant cash flow, most of it is used to pay off substantial debt and fund dividends, with little left for growth. Recent efforts to cut costs and increase free cash flow have stabilized the dividend, but with no anticipated dividend increases and minimal overall growth, its long-term return potential is limited.

A scenario for AT&T investment over 35 years, showing that returns rely heavily on reinvesting dividends rather than the stock’s growth, as the price may remain flat. While the high yield could potentially sustain income. For those interested in dividend income, AT&T may still serve as a dependable source, but only with dividend reinvestment over time.