How AT&T Stock (NYSE:T) Is Back to Its Winning Ways


After several years in the doghouse for many investors, AT&T (T) is firing on all cylinders and back to its winning ways. I previously highlighted AT&T as a contrarian bet at the beginning of 2024, when the stock was trading at $17.31, and the stock has performed well since then, gaining over 35%. I remain bullish on the telecom giant based on its more focused and streamlined approach to the business, its commitment to returning capital to shareholders, its attractive 4.9% dividend yield, and its undemanding valuation.

For years, AT&T was known as a dividend stalwart, and many investors relied on the Dividend Aristocrat for reliable dividend income each quarter. AT&T hurt its reputation with many of these investors when it lowered its dividend in 2022 amidst the spinoff of Warner Brothers, which merged with Discovery to become Warner Bro Discovery (WBD). However, the move to spin off Warner Brothers looks like the right decision in hindsight, as the stock has languished amidst a series of struggles.

Meanwhile, AT&T is quietly getting back in the good graces of dividend investors. The stock yields an attractive 4.9%, well above the market average and above that of treasury bonds at a time when interest rates are likely to continue decreasing. Plus, after the 2022 cut, AT&T’s dividend looks safe and secure, with a dividend coverage ratio of just under 50%. This week, AT&T outlined its multi-year strategic vision at its Analyst & Investor Day, laying out plans to return $40 billion to shareholders over the next three years.

This will be done through a combination of $20 billion in dividend payments and $20 billion worth of share buybacks. This includes an initial share buyback authorization to purchase back $10 billion worth of shares before the end of 2026. Share buybacks are accretive to investors as they reduce the number of shares outstanding (thus increasing earnings per share) and can be a signal that management views shares as undervalued. Buybacks can be especially accretive for stocks that pay a large dividend because each share bought back is a share they no longer have to pay out the dividend on.

AT&T’s Investor Day re-established the fact that AT&T is prioritizing returns to shareholders, and it was also a good reminder that this is a more streamlined business than it was just a few years ago. The moves to foray into the entertainment business by purchasing DirectTV in 2015 and Time Warner in 2018 can only be described as major missteps.



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