Will Healy, The Motley Fool
5 min read
In This Article:
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AT&T's stock price has risen as the company refocused on its core telecom business.
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The company has maintained a generous payout since slashing the dividend in 2022.
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Despite a modest valuation, investors will not necessarily consider its P/E ratio as inexpensive.
The 2020s did not start well for AT&T (NYSE: T) 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.
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.
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.
