What happened

Shares of telecom giant AT&T (T 3.40%) fell 13.4% in the first half of 2023, according to data from S&P Global Market Intelligence. Over the same time span, the S&P 500 market index gained 15.9%. In other words, Ma Bell missed out on a tremendous bull run in the first half of this year.

So what

The driving force behind AT&T's disappointing first half sticks out like a sore thumb. The company reported first-quarter earnings in the middle of April, and the results left investors uninspired. The stock chart had largely followed the broader market trends, but AT&T shareholders took a 10.4% haircut that day and the stock has been trending lower ever since:

The usual headline numbers were largely in line with management's guidance and analyst projections. However, free cash flow landed at $1 billion, down from $2.8 billion in the year-ago period.

In the first quarter of 2022, dividend payments accounted for 133% of AT&T's free cash flows. This time, the cash-based payout ratio rose to 201%. In other words, the company spent twice as much cash on its dividend checks as it collected in cash profits this quarter.

That's a troublesome ratio, and many investors worried that AT&T might have to cut its robust dividend someday soon.

CFO Pascal Desroches issued a calming guidance update on June 20, explaining that free cash flow is on track for approximately $16 billion in 2023. That would be more than enough to finance the full-year's dividend payouts, which are roughly $8 billion. The next week, AT&T declared its next quarterly dividend of $0.2775 per share -- the same amount AT&T has paid in the last five quarters.

But these events didn't do much to stabilize the plunging stock chart.

Now what

AT&T hopes to shore up its struggling sales and profits through large investments in high-speed fiber-optic data services and 5G wireless-network upgrades. But those are long-term plans, and the company's efforts haven't made a significant difference so far.

T-Mobile keeps grabbing market share in the wireless sector, and Ma Bell is saddled with a crushing debt load. Interest expenses added up to $6.2 billion over the last four quarters, consuming 26% of AT&T's operating profit.

And that's not a new story. AT&T has a long history of underperforming the market, whether you account for reinvested dividends or not, and over nearly any period you choose. I don't see how the current situation is any different.

Don't let the low stock price trick you into seeing a deeply discounted value play here. Many investment ideas in the data infrastructure and telecom markets stand on much firmer ground than AT&T.