The 2020s did not start well for AT&T (T 0.83%) stock.
In the 2010s, the company veered from the wireless-focused business models of its competitors and invested heavily in non-core businesses such as DirecTV satellite TV services and Time Warner entertainment. This was a costly mistake that ended with the company selling these enterprises at a massive loss and slashing its dividend after 35 straight years of increases.
However, as it pivoted exclusively into a wireless and fiber focus, investors returned to AT&T, and the stock price has almost doubled since its lows in mid-2023. The question now is whether that growth can continue over the next year.
Image source: AT&T.
The state of AT&T today
Indeed, AT&T has become a more compelling investment since selling its non-core assets. As one of the three major telcos in the U.S., it maintains a strong position in a critical industry where Verizon Communications and T-Mobile US are its only competitors.
Since spinning off non-core businesses, AT&T more closely resembles its competitors. About 70% of its revenue comes from its mobility business in the U.S. Just over one-fourth of its revenue comes from wireline enterprises, with a slight majority of those customers being other businesses. Just over 3% of its revenue comes from its operations in Latin America.
Admittedly, the spinoffs did not change the fact that AT&T is a mature business, making it unlikely to interest growth-oriented investors.
Still, income investors will like that its $1.11-per-share annual payout has remained stable since the 2022 dividend cut. Even with a rising stock price, the dividend yield is 4%, more than triple the S&P 500 average of 1.3%.
Additionally, analysts forecast free cash flow of $16 billion, down from just under $18 billion in 2024. Still, since the dividend costs the company about $8.4 billion, AT&T will likely maintain this dividend and could eventually begin to resume payout hikes.
AT&T's financials
As stated before, AT&T is no longer a growth business. However, its revenue for the first quarter of 2025 was just under $31 billion, a 2.5% yearly increase. Also, since revenue in 2024 fell 0.1%, the performance may have meant a slight recovery. Costs and expenses grew faster than revenue, but thanks to a $1.4 billion increase in the rise of equity from affiliates, net income attributable to AT&T was almost $4.4 billion, a 26% increase.
Looking forward, AT&T expects steady growth, with revenue expected to rise by a low-single-digit percentage. It did not offer guidance on its profit increases, though consensus estimates point to an 8% pullback in profits before turning positive by 7% in 2026.
Still, such growth did not stop the company from generating over 65% in total returns over the last year.
Moreover, despite that increase, AT&T stock trades at a 17 P/E ratio compared to the S&P 500 average earnings multiple of 28. Objectively, that is not a high P/E ratio. Still, with profit struggles, it is unclear whether investors would perceive that multiple as inexpensive. That adds to the uncertainty surrounding AT&T stock in the near term.
AT&T stock in one year
Over the next year, AT&T stock may struggle to beat the performance of the S&P 500.
Admittedly, the gains over the last two years are impressive, and over time, its stock should continue moving higher. It may also be an excellent buy for income-oriented investors, as a refocus on telecom has meant that its free cash flows can easily cover the dividend and, possibly, payout hikes at a later time.
However, AT&T remains a mature company that grows its revenue and profits slowly. That means it could struggle to draw growth investors, particularly with its comparatively high P/E ratio.
The good news for its current shareholders is that a downturn in the near future is unlikely, making the stock a hold. Nonetheless, unless you're buying for income, it likely does not pay for investors to add shares at this time.
