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AT&T Releases Its Increased Capital Return Plan

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AT&T (T) has been consistently rewarding shareholders with dividends. The telecom company spent $3.7 billion to pay a cash dividend of $0.51 per share in the third quarter. On Wednesday, AT&T’s dividend yield was 5.34%, and its annualized payout was $2.04.

In Q3 2019, AT&T’s free cash flow dividend payout ratio was 60.1% compared to 56.1% in Q3 2018. Among AT&T’s competitors, T-Mobile (TMUS) and Sprint (S) don’t pay equity dividends.

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AT&T consistently rewards shareholders

During Tuesday’s UBS Global TMT Conference, AT&T COO John Stankey highlighted that the company started share repurchases in the fourth quarter. Stankey also unveiled an accelerated share buyback program. In Q1 2020, AT&T expects to repurchase 100 million shares worth $4 billion.

In the third quarter, AT&T generated a free cash flow (or FCF) balance of $6.2 billion, 4.2% lower than its FCF balance of $6.5 billion in the third quarter of 2018. The carrier generates robust FCF to support its generous dividend payment. The company’s cash flows from operating activities fell 7.8% YoY (year-over-year) to $11.4 billion in the third quarter. Its capital spending in Q3 2019 totaled $5.2 billion, compared to $5.9 billion in Q3 2018.

For 2019, AT&T has reaffirmed its free cash flow guidance range of $28 billion and its gross capex guidance range of $23 billion. For 2019, the telecom company is also targeting a dividend payout ratio in the range of 50%, down from 60% in 2018.

AT&T is focusing on retiring debt

On September 30, AT&T had $165.2 billion in total debt and $6.6 billion in cash on its balance sheet, resulting in a net debt balance of $158.6 billion. The telecom giant is currently focusing on deleveraging its business using its free cash flow after dividends and asset monetization.

During the conference on Tuesday, Stankey reaffirmed that AT&T is on track to achieve a net-debt-to-EBITDA ratio of nearly 2.5x by December 31. For 2019, the telecom company expects to monetize about $14 billion of nonstrategic assets.

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AT&T invests to boost local networks

A mobile operator’s network performance plays a crucial role in customer retention. AT&T recently highlighted that it made various investments in its wireless and wired networks between 2016 to 2018, as detailed below:

  • $800 million in its Oklahoma wireless and wired networks.
  • $725 million in its Kansas wireless and wired networks.
  • $1.8 billion in its Missouri wireless and wired networks.
  • $1.5 billion in its St. Louis wireless and wired networks.
  • $100 million in its Wichita wireless and wired networks.
  • $110 million in its Topeka wireless and wired networks.

These investments would enhance AT&T’s network reliability, speed, coverage, and overall performance for residential customers and enterprises.

RootMetrics’ 1st Half 2019 National RootScore report highlighted that at the national level, AT&T ranked second in five of six network performance categories: overall performance, network reliability, data performance, speed performance, and call performance. AT&T shared first place with Verizon in the text performance category. AT&T earned a score of 93.2 for overall network performance, compared with T-Mobile’s score of 86.9, Sprint’s score of 86.7, and Verizon’s score of 94.8.

The second-largest wireless service provider in the US also focuses on network function virtualization and software-defined networking technologies to improve its network performance. The carrier is on track to achieve virtualization of 75% of network functions by 2020.

Analysts’ target price and ratings

Most of the analysts have remained neutral on AT&T stock. Thirteen analysts suggest buying the stock—down from 14 analysts in the previous month. Meanwhile, 14 analysts suggest a “hold,” which is unchanged from the previous month. Two analysts suggest a “sell,” up from one analyst in the last month.

Of these Reuters-surveyed analysts, about 77% and 12% recommended a “buy” for T-Mobile and Sprint stock, respectively.

On Wednesday, analysts’ consensus target prices for telecom companies were as follows:

  • $39.02 for AT&T stock, 2.2% higher than its market price of $38.17.
  • $90.16 for T-Mobile stock, 20.8% higher than its market price of $74.62.
  • $6.43 for Sprint, 22.5% higher than its market price of $5.25.
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Stock performance

AT&T has risen around 33.7% this year, outperforming the major US indexes. The Dow Jones Industrial Average and the S&P 500 have risen about 20% and 26%, respectively, year-to-date.

On Wednesday, AT&T’s stock price closed at $38.17, which represents 42.4% growth from its 52-week low of $26.80 on December 26, 2018. AT&T hit its 52-week high of $39.70 on November 18.

AT&T’s 14-day RSI (relative strength index) score is 51.69, which implies that the stock isn’t overbought or oversold. On Wednesday, the stock closed near its Bollinger Band midrange level of $38.06. The value also signifies that investors are neutral on the stock.

On Wednesday, AT&T stock closed 0.4%, 0.2%, and 3.4% above its 20-, 50-, and 100-day moving averages of $38.01, $38.11, and $36.90, respectively. Because AT&T is currently trading higher than the moving average, the stock is trending upward.

This year, T-Mobile and Sprint have returned around 17% and -10%, respectively. On Monday, the lawsuit filed by various state attorneys general to stop the merger deal between T-Mobile and Sprint started in Manhattan. The critics believe that the combination is harmful to competition and would lead to increased prices for consumers. To learn more about the merger deal, check out T-Mobile, Sprint Merger Antitrust Trial Starts.

Read AT&T’s Share Buyback, Cost-Cutting, HBO Max, and More and AT&T Stock: Jim Cramer’s Views, Wall Street’s Preference to learn more.

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