AT&T's Resilience: Growth in Cash Flow Amid Challenges

AT&T (NYSE: T) stock soars with a 60% rise over the past year. Increased free cash flow and positive net additions signal steady growth in mobility and fiber segments. The telecom giant remains attractive for income investors amid market uncertainties.

Date: 02-04-2025

AI Rating: 7

Positive Performance
AT&T's recent performance highlights a remarkable turnaround from previous years. With a significant stock rally of 60% over the past twelve months, AT&T has outperformed the S&P 500, demonstrating that it has regained investor confidence. The divestiture of non-core assets, including DirecTV, has enabled the company to refocus on its primary businesses.

Stable Free Cash Flow
One of the notable aspects of AT&T's financial report is its impressive free cash flow (FCF). In 2023, the FCF increased by 19% to $16.8 billion, outpacing its dividend obligations, which amount to $8.1 billion. Similarly, for 2024, AT&T is expecting a 5% growth in FCF, reaching $17.6 billion. Given that the FCF comfortably covers dividend payments, it provides a safety net, reassuring dividend investors.

Earnings Outlook
Looking ahead to 2025, AT&T anticipates its adjusted Earnings Per Share (EPS) will range between $1.97 to $2.07, although this represents a decline from the adjusted EPS of $2.26 in 2024. While this projection may seem slightly disappointing, the expectation of stable revenue growth in mobility and fiber services indicates resilience in core operations. Furthermore, the company plans to reduce its net-debt-to-adjusted-EBITDA ratio, improving its financial health over time.

Market Positioning
AT&T's solid dividend yield of 3.9% is attractive, particularly in a market characterized by volatility and inflation concerns. With rising interest rates, if they decline further, AT&T's dividend yield could entice more income-focused investors. Additionally, management aims to grow its mobility service revenue and consumer fiber broadband revenue, potentially giving it an edge against competitors such as Verizon, which offers a higher dividend yield but is growing more slowly in users.

Conclusion
Overall, AT&T's strategy of focusing on core competencies, solid cash flows, and attractive dividend yields establishes it as a robust investment choice for conservative investors. The slight anticipated decline in adjusted EPS does not overshadow the broader positive outlook for the company, making it a reliable option for those seeking stability among uncertain market conditions.

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