AT&T (NYSE:T) isn’t just another pretty face in the finance world – its high-dividend yield is the golden ticket that makes it shine in the eyes of income-oriented investors. But don’t go skipping to the nearest financial market with your piggy bank just yet. We need to look beyond the glittering facade and see if this diamond in the rough really sparkles or if it’s just a case of fool’s gold.
The recent struggles in AT&T’s shares due to lead cable issues have caused quite a headache for investors. But let’s dig deeper and get to the bottom of whether AT&T is a jewelry box treasure or a piece that’s better left in the dirt.
Sailing Through Storms: Recent Financials & Dividend
AT&T’s Q3 earnings, reported about a month ago, outperformed estimates on both revenues and the bottom-line, marking its best quarter in the past year. The positive share price reaction to this news suggests that investors were on board with the company’s performance.
The $30.4 billion in Q3 revenues, a 1% increase year-over-year, paints a pretty picture of growth, especially with 468,000 new customers coming on board, thanks to AT&T’s 5G and fiber rollout. With T-Mobile US (TMUS) and Verizon (VZ) nipping at its heels, AT&T’s performance is nothing short of impressive.
AT&T’s strong position in the U.S. telecom industry, with close to 47% market share, raises the stakes for competitors. But with rumors of a potential sale of US Cellular Corp (USM), the telecom turf could soon become a battleground for just a few major players.
One looming challenge for AT&T is the lead cable issue, which could lead to massive costs. While estimates suggest a potential $10 billion fix for about 10% of its copper cables, it’s a hurdle AT&T can feasibly clear without tarnishing its sheen. With a 50% expected dividend payout based on free cash flow, there’s room to maneuver and address this issue while keeping the golden stream flowing.
Additionally, the company’s focus on debt reduction might put a damper on party plans for dividend growth in the near future. However, once AT&T reaches its desired leverage ratio in 2025, a surge in dividends could be on the horizon. As it stands, the market isn’t betting on substantial dividend growth until then.
Looking Beyond the Glitz: Conclusion
Despite the lead cable woes and rocky dividend growth outlook, AT&T’s improved operating metrics and solid dividend sustainability make it a compelling choice. Trading at just 6.4x forward earnings, well below its historical average, and sporting a hefty 7% dividend yield, this diamond in the rough could be a gem for income-oriented investors.