Telecom Giant’s Dividend Yield Entices Investors Amid Balance Sheet Improvement
AT&T, a stalwart in the telecommunications industry, has been working to revamp its financials after a significant dividend cut in 2022. The company’s decision to spin off its media division and create Warner Bros. Discovery was a strategic move to retain cash and reduce debt. Although the journey has been long, AT&T’s efforts are finally paying off, with its leverage ratio decreasing and excess free cash flow increasing.
As of the second quarter, AT&T’s net debt stood at $126.9 billion, with a leverage ratio of nearly 2.9 times. This marks a notable improvement from the previous year, when the company had $132 billion of net debt and a 3.1 leverage ratio. The telecom giant has been using its growing excess free cash flow to repay debt, resulting in a $1.9 billion debt reduction in the second quarter and $5.1 billion over the past year.
Looking ahead, AT&T expects to continue generating excess cash, which should enable it to reach a leverage ratio of around 2.5 in the first half of next year. The sale of its remaining 70% stake in DirecTV to partner TPG will bring in an additional $7.6 billion of cash through 2029, further strengthening the company’s balance sheet.
With its financial foundation improving, AT&T’s 5% yielding dividend is becoming increasingly sustainable. While the company hasn’t increased its dividend since the spinoff, it may do so in the coming years as it continues to deleverage and generate excess cash.
In comparison, rival Verizon boasts a higher dividend yield of around 6% and has consistently increased its dividend over the years. Verizon’s stronger financial profile, with a leverage ratio of 2.5, has enabled it to return more cash to shareholders. However, AT&T’s improving balance sheet could soon make it a more attractive option for income investors.
Before investing in AT&T, it’s essential to consider the broader market landscape and expert recommendations. The Motley Fool’s Stock Advisor team has identified 10 top stocks with potential for monster returns in the coming years. With a proven track record of outperforming the S&P 500, their guidance could be invaluable in building a successful investment portfolio.
Leave a Reply