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Can AT&T Keep Returning Value to Its Shareholders?

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AT&T stock rose on Q2 results

AT&T (T) stock rose 3.58% on Wednesday after the leading US wireless service provider reported its second-quarter earnings results before the market bell on July 24. On a YTD basis, AT&T stock was up 16.5%. In comparison, Sprint and T-Mobile were up 31.6% and 26.7%, respectively, YTD.

Consistently returning value to shareholders

AT&T has impressed its shareholders with attractive dividends for the past few years in spite of high debt levels. In the second quarter, the company returned $3.7 billion to shareholders in the form of dividends. AT&T declared a quarterly dividend of $0.51 per share in the second quarter. This dividend grew 2.0% on a YoY basis. AT&T’s quarterly dividend was equivalent to an annualized dividend of $2.04 per share and a dividend yield of 6.1% as of July 24.

In the second quarter, AT&T reported a free cash flow balance of $8.8 billion, an increase of 72.1% YoY from $5.1 billion in Q2 2018, which supported its generous dividend payout. Cash flow from operations rose 39.6% YoY to $14.3 billion in the second quarter. Total capital expenditures were $5.5 billion in the second quarter as compared to $5.1 billion in the second quarter of 2018.

AT&T also plans to embark on a stock buyback program in the second half of this year. Randall Stephenson, AT&T’s chair and CEO, stated, “The debt we have will be at a very reasonable place as we exit this year, I fully expect that we’ll be buying some stocks back as we go on this year and (expect) cash flows to continue,” in a conference call with analysts.

AT&T’s leverage

As of June 30, AT&T’s total debt was $170.6 billion as compared to $176.5 billion at the end of December 31, 2018. The company’s debt level increased significantly due to its acquisition of Time Warner in June last year. According to the Reuters report on July 24, “The company spent $6.8 billion on paying off the debt in the second quarter, and said it was on track to cut its net debt load to about $150 billion by the end of the year.”

During the Q2 earnings conference call, Stephenson also said that the company was on track to reduce its leverage to about 2.5x by the end of this year.

AT&T’s earnings and revenue

AT&T has just managed to meet consensus earnings estimates in the last three quarters. The mobile operator reported adjusted EPS of $0.89 in the second quarter, which was 2.2% lower than the adjusted EPS of $0.91 in the second quarter of 2018. However, it was in line with analysts’ consensus estimate of $0.89 for the second quarter of 2019.

AT&T reported solid revenue growth in the second quarter. Its revenue rose 15.3% YoY to $45.0 billion, beating analysts’ consensus estimate of $44.9 billion. It’s important to note that the significant YoY revenue growth was a result of its Time Warner acquisition.

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