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Why AT&T Is Deleveraging

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AT&T’s debt

At the end of last year’s fourth quarter, AT&T’s (T) long- and short-term debt was $166.3 billion and $10.3 billion, respectively, making its total debt $176.5 billion. Its total debt was $164.3 billion at the end of 2017’s fourth quarter. The telecom company’s debt increased significantly due to its $85.4 billion Time Warner acquisition last June.

At the Morgan Stanley Technology, Media and Telecom Conference on February 27, AT&T CFO John Stephens spoke about AT&T’s deleveraging plan, noting that AT&T could generate ~$26 billion in free cash flow in 2019. AT&T is planning to use ~$12 billion in cash after dividends—as well as $6 billion–$8 billion from asset monetization—toward paying the debt. Stephens reiterated that AT&T is committed to reducing its leverage to ~2.5x by the end of this year.

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AT&T’s dividend yield

AT&T remains committed to paying higher dividends in spite of its higher debt. In last year’s fourth quarter, the company returned $3.6 billion to shareholders as dividends. Its quarterly dividend, which grew ~2.0% year-over-year to $0.51 per share, was equivalent to an annualized dividend of $2.04 per share and a dividend yield of ~6.8%. In comparison, Verizon’s (VZ) dividend yield is ~4.3%. Sprint (S) and T-Mobile (TMUS) don’t pay equity dividends.

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