What happened

Shares of AT&T (T -0.46%) were up 8% as of 12:33 p.m. ET on Thursday after the company reported strong earnings results for the third quarter. The stock has outperformed the broader market this year, down only 9.5% year to date, thanks to relatively stable revenue from wireless subscribers. 

The company posted revenue of $30 billion, higher than the consensus analyst estimate that called for $29.87 billion. Adjusted earnings per share of $0.68 also beat estimates of $0.61.

Its ability to convert consistent top-line performance into solid gains on the bottom line could change the market sentiment around this telecom stock, which saw its share price plunge heading into the report.

So what

The stock is moving higher partly because the results validate that AT&T's recurring revenue business is working to deliver consistent results in a challenging economy. AT&T said it delivered its highest wireless service revenue growth in a decade.

Moreover, management said it sees a "line of sight" in achieving full-year free cash flow of $14 billion. The company is on pace to achieve cost savings of $4 billion to $6 billion by the end of the year. 

Now what

AT&T expects to deliver further mid-single-digit wireless service revenue growth. It is music to investors' ears that the company is on target to hit all of its financial targets for the year amid a challenging economic backdrop.

Most importantly, the free cash flow generation is proving to be more than enough to sustain the $8 billion dividend payout to shareholders. AT&T currently pays a quarterly dividend of $0.2775 per share, bringing the dividend yield to an above-average 6.6%.  

AT&T is proving its status as a defensive holding for the market downturn. It is enjoying strong increases in postpaid phone net adds as it deploys midband 5G spectrum, and the company is also nearing the 1 million milestone in AT&T Fiber net adds for 2022.