Is It Time to Sell AT&T Stock?

AT&T Inc. (NYSE:T) is the biggest provider of mobile and landline telephone services in the United States but its roots date back to 1876 when it was the tiny Bell Telephone Company.

It wasn’t until 198e that Bell Telephone became known as AT&T and since then it has continued to grow and evolve so that it now offers a wide array of products, including broadband, digital television, and other telecommunication and technology-related services.

AT&T has actively invested in the media and entertainment industries, which has created more opportunities to strengthen its position beyond what it was traditionally known for but that hasn’t necessarily been a boon for shareholders.

Over the past five years, AT&T shareholders have experienced tremendous volatility in the stock price. AT&T shares have lost more than 26% of their value during that period but things may be looking up. Over the past 12 months, AT&T stock gained roughly 11%.

Understandably, some investors are skeptical about buying AT&T stock after multiple consecutive years of poor performance. Is the telecom giant’s current upward trajectory an indicator of temporary stabilization, or does it signify a sustainable long-term trend?

1.1 Million Reasons To Own AT&T

AT&T is one of the largest telecommunications companies to enter the 5G and fiber markets. Fiber is now the industry standard for wired and wireless access network infrastructure. But where the company enjoys a competitive edge is in its fixed wireline and mobility integration assets.

The company’s fiber network and wireless technology improvements have translated to faster data transfer speeds that ultimately are designed at keeping consumers and businesses happier and paying monthly. Or in short, the strategy is invest in technology to keep customers coming back and retention high.

AT&T began focusing on fiber deployment in 2020, and the result was a boost in customers served. By the end of last year, AT&T had more than 8.3 million fiber consumer wireline broadband customers, an impressive 1.1 million of which were added in 2023 alone.

Being the foundational layer upon which streaming services, augmented reality, smart technologies, and user-generated flow is key too success. Yet AT&T isn’t content to rest on its laurels. For FY 2024, management aims to introduce additional bundled mobility and broadband products to reduce user costs.

Is AT&T an Essential Service?

The pace of data use continues to grow rapidly. Developing countries are expanding internet access to underserved communities, and more businesses are relying on data collection and analysis to develop and market products that are in demand among consumers.

In large part, AT&T has become essential to these efforts, and continues to promote universal access to information and communication tools by repurposing cell sites to support 5G technology.

As smartphone market penetration approaches complete saturation in the United States, AT&T’s future wireless growth will depend on its ability to attract customers with innovative new services, high-value plans, and advanced devices. These initiatives rely on 5G network coverage.

Speaking of which, global 5G market is expected to reach $60.93 billion by 2029, representing a CAGR of 16.80%.

AT&T’s plan for enhanced mobile data usage facilities includes expanding the wireless network’s spectrum and capacity to a broader geographic area while increasing network capacity, an approach that has proven successful in recent years.

Partnerships are on track to drive further growth. Last December, AT&T announced a collaboration with Ericsson that will lead the nation in commercial-scale open radio access network (Open RAN) deployment.

If all goes as planned, fully integrated Open RAN sites will start operating in 2024, and approximately 70% of expected wireless network traffic will pass through open-capable platforms by the end of 2026.

Near 6% Yield Is Attractive to Income Investors

AT&T’s dividend has long been a strong selling point for income investors. That hasn’t changed, despite the fact that AT&T halved the annual dividend payout in 2022 following the WarnerMedia spinoff.

This decision ended a streak of dividend increases for AT&T. Nonetheless, business leaders say that the company remains committed to returning value to shareholders.

AT&T’s annual dividend of $1.11 yields around 5.87% at the current price level, and its payout ratio stands at 64.22%.

Over the past three years, AT&T’s dividend payouts have declined to total approximately 11% CAGR.

Sales Dip But Cash Flows Are Strong

Total sales were marginally below the projected figure, which is attributed to heavy competition but the wireless segment grew thanks to higher subscriber figures and better retention.

AT&T’s revenue for the quarter came in at $30.03 billion, which didn’t quite meet analysts’ expectations of $30.53 billion. This figure represents a decline from the $30.14 billion revenue recorded for the same quarter the previous year.

Management reported 252,000 AT&T Fiber net adds, which marked the 17th consecutive quarter of over 200,000 net adds.

Adjusted earnings per share came in at $0.55, exceeding the consensus estimate of $0.53 but this is a drop when compared to the $0.60 EPS reported for the prior year quarter.

AT&T generated a solid $3.14 billion in free cash flow, which is up significantly from the $1 billion reported in the previous year’s quarter.

Is It Time To Sell AT&T Stock?

With analysts forecasting a 15.9% rise to fair value of $21.50 per share and a 5.87% dividend, now does not appear to be a good time to sell AT&T stock.

Several macro factors, such as inflation and interest rates do have the potential to impact AT&T’s product sales so it’s unlikely to be smooth sailing but it does seem as if the worst is behind the company.

On a positive note, AT&T has been investing in expanding its 5G and fiber networks and these investments may start to generate significant financial returns in the coming years.

Given the company’s high shareholder yield, strong free cash flow yield and low price volatility, there is enough to like about AT&T to start attracting new buyers who have sat on the sidelines during the period when dividends were cut and debt burdens were high. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.