AT&T's Stock Rises 36%, But Growth Remains Stagnant

AT&T's stock has increased by 36% over the past year, making it a notable choice for dividend investors. However, while its dividend looks stable, business growth appears stagnant. Investors are advised to be cautious before making new purchases.

Date: 23-01-2025

AI Rating: 5

Stability and Dividend Support
AT&T's recent earnings report indicated a slight decline in revenue, down by less than 1% year over year for the period ending September 30, 2024. The adjusted operating income remained unchanged, reflecting stable operations despite the stagnant revenue. This stability supports the company's dividend strategy, heavily reliant on its free cash flow, which is projected to range between $17 billion and $18 billion for the full year of 2024. The company's dividend payouts, amounting to about $2 billion per quarter or $8 billion annually, seem secure given the projected free cash flow.

Implications for Stock Performance
AT&T's stock currently trades at over 18 times its trailing earnings, indicating a premium valuation compared to Verizon but a discount relative to T-Mobile US. While this suggests that AT&T might be undervalued compared to the broader market average of 25 times earnings, it lacks significant growth indicators to justify a major rally. The high long-term debt of more than $126 billion poses additional risks, particularly in a high-interest-rate environment.

Future Outlook
Investors may find it prudent to wait for the upcoming earnings report before making substantial commitments. Unless AT&T surprises the market with a significant earnings beat, stock performance expectations are low, and it's likely that the stock won’t see much room for upward movement post-earnings. With valuations that don't signal a bargain and limited growth prospects, those looking for high returns might want to explore alternatives.

Stocks: T VZ TMUS