AT&T (T +0.04%) is often considered a slow-growth stock -- the kind of investment people hold for stable returns and dividends rather than market-beating gains. But over the past 12 months, the telecom giant's stock rallied by 60% as the S&P 500 rose just 6%. Let's consider why this dividend stalwart attracted a stampede of bulls -- and if it's still worth buying today.
Why did AT&T become a popular stock again?
Back in 2021 and 2022, AT&T spun off DirecTV, Time Warner, and many of its smaller media assets, abandoning its ill-fated attempt to build a massive media business. By dumping those low-margin and unprofitable businesses, it freed up cash that it could use to strengthen its core 5G wireless and fiber broadband businesses, and to reduce its debt burden.
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In 2023, the slimmed-down AT&T gained 1.7 million and 1.1 million net adds for its postpaid phone and fiber businesses, respectively. Its free cash flow (FCF) rose 19% to $16.8 billion, easily covering its $8.1 billion in dividend payments.
In 2024, AT&T posted 1.7 million and 1 million net adds for its postpaid phone and fiber businesses, respectively. Its FCF grew 5% to $17.6 billion, still comfortably covering its $8.2 billion dividend payout. At the current share price, its dividend yields 3.9%.
That stability has made AT&T attractive as a safe haven stock at a time when sticky inflation, elevated interest rates, and the Trump administration's unpredictable tariffs have rattled the markets. But if interest rates decline further and drive the 10-year Treasury's yield (currently at 4.3%) below AT&T's yield, the stock could become even more attractive to income investors.
NYSE: T
Key Data Points
What's next for AT&T?
In 2025, AT&T expects its mobility service revenue to rise at the "higher end" of the 2% to 3% range, its consumer fiber broadband revenue to grow by a percentage in the "mid-teens," and its consolidated service revenue to increase by a percentage in the low single digits. It expects the growth of its wireless and fiber segments to offset the persistent weakness of its business wireline segment.
AT&T also expects to generate free cash flow of more than $16 billion (excluding the planned sale of its remaining 70% stake in DirecTV by mid-2025) and adjusted EPS (also excluding DirecTV) of $1.97 to $2.07. That would represent a decline from its adjusted EPS of $2.26 in 2024, but management expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- a metric that filters out the near-term noise from its recent divestments and other one-time expenses -- to grow by at least 3%.
As for its leverage, AT&T expects to reduce its net-debt-to-adjusted-EBITDA ratio from 2.7 at the end of 2024 to 2.5 within the first half of 2025 -- even as it ramps up its near-term investments in its wireless and fiber networks.
From 2024 to 2027, analysts expect AT&T's revenue and adjusted EBITDA to grow at compound annual rates of 1.5% and 3.2%, respectively. With an enterprise value of $314.7 billion and trading at 6.9 times this year's adjusted EBITDA, AT&T still looks like a bargain. Its chief competitor, Verizon Communications, trades at 6.5 times this year's adjusted EBITDA and pays a dividend with a higher yield of 6% -- but it has been gaining new wireless customers at a slower rate.
Is it the right time to buy AT&T?
AT&T had a great run over the past year, and it still looks like a worthy investment. It's well-insulated from Trump's tariffs since it doesn't rely on overseas trade, it pays an attractive dividend, and it's still trading at low valuations. The stock probably won't skyrocket over the next few quarters, but it should be a safe place to park your cash and earn some extra income.
