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.

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.

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.