When I started a position in AT&T (T -0.27%) in late 2015, I considered it a safe stock with a wide moat, low valuation, and a high yield. Unfortunately, AT&T's stock declined 20% over the past five years as the S&P 500 advanced about 70%. Even after factoring in reinvested dividends, AT&T generated a total return of just 5%.

I've defended AT&T plenty of times, but it's becoming impossible to ignore some of its bigger problems. Let's review three major issues with AT&T, and why they're shaking my faith in this Dividend Aristocrat.

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1. Falling behind T-Mobile

T-Mobile (TMUS 0.41%) closed its $30 billion merger with Sprint earlier this year, and recently surpassed AT&T as the country's second-largest wireless carrier after Verizon (VZ 0.32%) with 98.3 million subscribers. T-Mobile also now operates the largest 5G network in the U.S., which covers more than 250 million people across 1.3 million square miles.

T-Mobile's 5G network mainly uses a 600 MHz low-band spectrum that travels and penetrates structures better than the high-band mmWave spectrums used by AT&T and Verizon. T-Mobile plans to merge that low-end spectrum, the mid-band airwaves it gained from Sprint, and mmWave spectrums to create the country's fastest 5G network.

T-Mobile's pole position in the 5G market will enable it to profit from the launch of new 5G devices, like Apple's iPhone 12. AT&T continues to expand its 5G network while flirting with ideas like ad-sponsored subscriptions, but it seems more interested in expanding its media ecosystem than catching up to T-Mobile.

2. Its media plans are still a mess

Unfortunately, AT&T's pay TV platforms -- including DIRECTV, U-verse, and AT&T TV -- are still losing subscribers to streaming services. AT&T lost another 590,000 pay TV subscribers during the third quarter.

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Image source: Getty Images.

AT&T initially launched too many streaming services at once, but it's eliminated several redundant services to focus on the growth of AT&T TV Now and HBO Max. AT&T TV Now streams a bundle of live channels, while HBO Max streams content from HBO and Time Warner's other properties.

But neither platform seems well-positioned to challenge Netflix (NFLX -0.79%), Disney+ (DIS 0.55%), Hulu, and other streaming leaders. AT&T TV Now costs $55 to $110 per month, based on the number of bundled channels, while HBO Max costs $15 per month.

By comparison, Netflix costs $9 to $16 per month in the U.S., based on the maximum resolution and number of screens. Disney+ costs just $7 per month, or $13 per month when bundled with Hulu and ESPN+.

AT&T had 57 million global HBO and HBO Max subscribers (including 38 million in the U.S.) at the end of the third quarter, but in their last quarters, Netflix hit 195 million subscribers and Disney surpassed 100 million streaming subscribers. AT&T needs to pour more cash into that streaming ecosystem, which is likely unprofitable, to keep pace with those larger rivals.

3. Its addiction to dividends

But accessing that cash is easier said than done. AT&T was shouldering $180 billon in debt when it closed its takeover of Time Warner in mid-2018. It gradually reduced that figure to $149 billion by the end of the third quarter, but it's relied heavily on asset sales to tame its debt. That's why recent reports suggest AT&T might sell DIRECTV, which it acquired for $49 billion five years ago, at a steep loss.

AT&T's debt remains manageable with limited near-term maturities, but it expects its free cash flow to dip from $29 billion in 2019 to about $26 billion this year. It expects its dividend payout ratio to remain in the high 50s this year, which indicates it will keep raising its dividend for the foreseeable future.

However, many critics have pointed out that AT&T's dividends are wasteful, and suspending those payments would enable it to reduce its debt much faster or free up more cash for more aggressive investments in its 5G network, streaming services, or WarnerMedia's new movies.

Those improvements could generate stronger returns for shareholders than its dividends -- which merely offset AT&T's declines as it underperformed Verizon, T-Mobile, and the S&P 500 over the past five years.

The key takeaways

I'm not giving up on AT&T yet, but the sluggish growth of its wireless business, its ongoing loss of pay TV subscribers, its unimpressive streaming efforts, and its high debt all overshadow its low valuation and high yield. AT&T's stock is cheap for a reason, and I don't expect the bulls to come back until it addresses those fundamental problems.