AT&T (T 0.17%) has been busy over the past two years. The telecom giant spun off DirecTV, divested WarnerMedia through a merger with Discovery to create Warner Bros. Discovery, and sold many of its other smaller media subsidiaries and non-core assets to streamline its business. The company claimed those efforts would enable it to expand its core telecom business, generate stable revenue and earnings growth again, and reduce its long-term debt.

AT&T's stock is down only about 2% since it started trading separately from Warner Bros. Discovery on April 11. It held steady because its low valuation, high dividend, and stable growth made it a safe haven investment as interest rates continued to rise.

An employee at an AT&T store in Chicago.

Image source: AT&T.

But will AT&T remain a promising investment in 2023 and beyond? Let's review four reasons to buy this telecom stock -- as well as four reasons to sell it -- to see if it's an undervalued dividend play or simply dead money.

The four reasons to buy AT&T

AT&T still looks like a compelling investment for four reasons: Its wireless business is growing at an impressive clip again, its margins are improving, its stock looks cheap, and it pays a very high dividend.

AT&T gained 2.21 million new postpaid phone subscribers in the first three quarters of 2022 -- including 691,000 in the first quarter, 813,000 in the second quarter, and 708,000 in the third quarter. By comparison, its larger competitor Verizon actually lost 36,000 postpaid phone subscribers in the first quarter, added 12,000 subscribers in the second quarter, and only gained 8,000 subscribers in the third quarter.

AT&T CEO John Stankey expects the company's wireless revenue to rise "at the upper end" of 4.5%-5% for the full year. That's about 200 basis points higher than the forecast AT&T provided at the beginning of 2022.

As AT&T's growth in subscribers and revenue stabilizes, the mobility segment (which houses its wireless business) is expanding its margins. It ended the third quarter with an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 55.2%, compared to 54.8% in the second quarter and 53.7% in the first quarter.

AT&T expects the adjusted earnings from its continuing operations to rise to more than $2.50 per share this year. That profit can easily cover its forward annual dividend of $1.11 per share, which translates to a hefty forward yield of 6.1%. At $18 a share, AT&T trades at just 7 times that earnings forecast.

As for its leverage, which had been inflated by the ill-fated expansion of its media business, AT&T still expects its net-debt-to-adjusted-EBITDA ratio to decline to 2.5 next year, compared to its "peak" net-debt-to-adjusted-EBITDA ratio of 3.1 at the beginning of 2021. Verizon ended its latest quarter with a net-debt-to-adjusted-EBITDA ratio of 2.7.

The four reasons to sell AT&T

The bears still dislike AT&T for four reasons: Its business wireline segment is a weak link, its wireless postpaid churn rates are rising, it's dealing with a growing number of late payments, and its free-cash-flow (FCF) growth is wobbly.

AT&T's business wireline revenue declined year over year in the first three quarters of 2022, due to soft demand for its legacy voice and data services that completely offset the anemic growth of its consumer wireline business. Excluding its DSL connections, AT&T only added 5,000 broadband connections in the first quarter of 2022, then lost 25,000 connections in the second quarter and shed another 29,000 connections in the third quarter.

AT&T is trying to counter those declines by expanding its newer fiber networks for faster broadband connections. It added 943,000 fiber connections in the first three quarters of 2022, but that expansion was still offset by its loss of legacy broadband customers. That pressure is erasing a lot of the growth of its healthier wireless business.

But the wireless business isn't flawless, either. The mobility segment ended the third quarter with a postpaid churn rate of 0.84%, which was up from 0.75% in the second quarter and 0.79% in the first quarter. It's also been dealing with a growing number of late payments over the past year as inflation disrupted the spending power of the average consumer.

Those delayed payments, along with higher-than-expected capital expenditures and investments in gaining new subscribers, forced AT&T to reduce its full-year FCF forecast from $16 billion to $14 billion back in July. That FCF can still easily cover its $8 billion in dividend payments this year, but it raises some concerns about its longer-term FCF growth and future dividend hikes.

Is AT&T stock still worth buying?

The "new" AT&T is far from perfect, but it's much better than the old one that was desperately trying to become a media superpower with debt-fueled deals. If you believe the bear market will drag on for at least a few more quarters, AT&T remains a safe place to park your cash and generate some stable income.