Will Debt Affect AT&T’s Dividend Yield?



Will AT&T’s (T) debt affect its dividends?  The company ended the third quarter with short-term debt of $11.6 billion while its long-term debt stood $153.6 billion, bringing its total debt to $165.2 billion. The company’s total debt was $176.5 billion as of December 31, 2018. And last year, the carrier reported high debt levels after it closed its acquisition of Time Warner in June 2018.

As a result, AT&T aims to deleverage its business using its free cash flow and asset monetizations. The wireless carrier plans to reduce its leverage to approximately 2.5x by the end of this year.

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AT&T’s dividend yield

In the first nine months of 2019, AT&T’s free cash flow rose 44.8% year-over-year to $20.9 billion. The company’s operating cash flow also increased by 16.5% year-over-year to $36.7 billion. Its capital expenditures fell 7.3% year-over-year to $15.8 billion in the first nine months of 2019. The wireless carrier is likely to report a free cash flow balance of $28 billion in 2019, up from $22.4 billion in 2018.

And AT&T is committed to rewarding its shareholders with higher cash dividends—despite the company’s high debt balance. In the first nine months of 2019, the company returned $11.2 billion to shareholders in the form of dividends. The returns were more than the dividend payment of $9.8 billion in the first nine months of 2018.

At the end of December 26, AT&T’s dividend yield stood at 5.31%. T-Mobile (TMUS) and Sprint (S) don’t pay equity dividends.

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AT&T’s growth projections

Analysts expect AT&T’s adjusted earnings per share to increase by 0.6% year-over-year to $3.54 for 2019. Last year, its adjusted EPS rose 15.4% year-over-year to $3.52 in 2018. And for 2020, analysts expect AT&T’s adjusted earnings per share to rise 1.7% year-over-year to $3.60. Plus, analysts expect the company’s 2021 adjusted EPS to rise 4.7% year-over-year to $3.77.

AT&T generated sales growth of 6.2% year-over-year to $170.8 billion in 2018. For 2019, Wall Street analysts expect revenues to increase by 6.3% year-over-year to $181.4 billion. Analysts expect sales to grow by only 0.4% year-over-year to $182.1 billion in 2020. Also, analysts expect its sales to grow by 0.3% year-over-year to $182.6 billion for 2021.

Analysts’ recommendations for T stock

Analysts have given a 12-month target price of $39.02 for T stock. The average target price stands at a 0.4% discount to the current price of $39.16 on December 26.

Also, out of 30 analysts covering AT&T stock, 13 gave it a “buy” rating. About 15 gave T stock “neutral” ratings, and only two gave “sell” ratings.

Stock performance

Shares of telecom giant AT&T rose 0.51% on December 26. T stock has generated returns of 4.8% month-to-date and 37.2% year-to-date. Also, the company was trading at a discount of 1.4% from its 52-week high of $39.70. This level is 39.4% higher than its 52-week low of $28.09. On a year-to-date basis, T-Mobile and Sprint have generated returns of 21.7% and -10.8%, respectively.

AT&T stock closed at $39.16 on December 26. Respectively, the stock was 2.2%, 2.1%, and 4.9% above its 20-, 50-, and 100-day moving averages of $38.32, $38.35, and $37.34. AT&T’s 14-day RSI (relative strength index) score is 63. This level indicates that the stock is approaching “overbought” levels.

See Is AT&T Stock Going to Surge Higher? and AT&T Releases Its Increased Capital Return Plan to learn more. Also, check out AT&T Announces Price Hikes for DIRECTV, U-verse TV.


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