Is AT&T Stock Finally a Buy for Dividend Investors?

[00:00:00]AT&T, ticker symbol T, is one of the largest and most profitable companies in the history of the world. The telecom giant has been generating billions in annual free cash flow for over 35 years.

[00:00:12]This has allowed them to be one of the largest and most reliable dividend payers in the history of the US stock market. The company has had decades of annual dividend raises one after the other until 2022 when they shocked the market with a 46% dividend cut. They took their quarterly dividend from 52 cents a share to just over 27 cents a share. Since then, AT&T has not raised the dividend once. And if we look here at the actual dollar amount of their dividends paid, they went from paying $15 billion over the trailing 12 months back before the dividend cut to now around $8 billion a year. So, what have they been doing with the money? Well, AT&T and its other telecom peers like Verizon, they have a ton of debt. At their peak, AT&T had $190 million of positive net debt. Since then, the company has lowered that to $152 billion. So, they've gotten their balance sheet in a better spot. AT&T is also a very capital intensive business.

[00:01:08]They have a lot of infrastructure that they're always building out. And they're kind of in this dilemma where they always have to have the latest and greatest so that they retain their market share. We'll talk a little bit more about that later. But, that's $21.4 billion of CapEx over the trailing 12 months. Where else is this money going?

[00:01:25]Well, one of it is share repurchases.

[00:01:28]That's right. They are rewarding shareholders in a different method than dividends. Over the trailing 12 months, the company bought back $6.7 billion of stock. And that's before the latest quarter that they just reported today.

[00:01:40]I'll give you the breakdown of that later. And since the company made that dividend cut, their stock price performance has been better after it bottomed out in 2023. But, over the past year when a lot of safe dividend stocks have been doing very well, AT&T is still down 16.7%.

[00:01:55]Today, I'm going to answer the question is AT&T still a good dividend stock in 2026? Is this dip a potential buying opportunity? And if so, for what kind of investor? What type of dividend investor should be interested in AT&T? To answer that question, I'll dive into all of the financials, giving you an update on the latest earnings report and how they just beat on their EPS. That's why the stock is up 2.8% today. I'll give my thoughts on whether the company can return to its historically strong total return return.

[00:02:25]I'll explain why dividends are such a big part of that return as well. I'll talk about today whether it looks like it's a good value based on historic multiples, and dive into how the dividend yield looks like today relative to historical yields. And throughout, I'll be using the next generation version of dividenddata.com. That's my stock research software, and it just launched this week. You can try it out for free, and you can also get 50% off annual membership. It's our founding member deal. You can lock in that discount price for life. Link is in the description and pinned comment of the video. With that said, let's roll the intro and get into this AT&T stock analysis.

[00:03:05]>> [music] [music] >> The following reflects the opinions of a man who spends far too much time thinking about stocks.

[00:03:35]Please do your own research before making any investment decisions.

[00:03:38]Nothing in this video is personal financial advice. Continue at your own risk.

[00:03:43]>> My name is Zach. This is Dividend Data, and you should leave a like and subscribe to the channel if you enjoyed the video. And today we're talking about AT&T, one of the largest dividend payers, although it has moved down on the list. If we filter by US companies that pay the most dividends, AT&T has moved all the way down to number 20.

[00:04:01]They're just ahead of PepsiCo and Walmart. If we look at shareholder returns in general, so that's dividends paid plus the share buybacks, and we filter by just US companies again, AT&T is actually one higher at spot 19. And that's because they've been paying more and more in share buybacks. So, that perhaps could help with AT&T's stock price in the coming years. In fact, in the latest earnings report, AT&T mentioned that they are planning to do more and more buybacks. I'll get to that in a bit. But first, I just want to dive into the big picture of AT&T stock and why the dividends matter so much. And that's because AT&T is not a growth company at all. Purely in terms of share price, if we go back to 1985, the company is only up 413% since then. That's a 4% compound annual growth rate, which is terrible. The market is beating it by a ton. Now, why is that? If we go and look at the earnings per share, you can see over time their earnings haven't grown that much. In fact, their EPS is basically flat since 1999.

[00:05:08]It's gone up and down a little bit of a roller coaster ride along the way, but there's been no long-term growth. So, if you were just looking at the stock price chart and everything around it, you would say avoid AT&T at all costs. And for a long-term growth-oriented investor, that's probably still the answer you should have. But I'm going to use this as a case study to show how a highly profitable company that pays dividends, how that's a huge part of your long-term total return and compounding that most people just don't even think about. So, I'm going to click total return right here. And in that same time period, going back to 1985, this company has paid dividends all along the way. And if you reinvested all of those earned dividends into buying more shares, your total return went from 400 something percent to 7,268% and that terrible 4% CAGR is actually 10.9% and 6,854% of that is dedicated entirely to dividends. So, the returns have been better than you would think for AT&T.

[00:06:10]But still, if your goal is total return, I think there are far better options in today's market than AT&T. But for someone who wants reliable dividend income and you lean much more in the value-oriented stocks where you want to eliminate your downside risk, AT&T is still in a pretty strong position and I'll dive into the latest earnings report to give you an update and then a big picture valuation of the company, how it stacks up to its historical yields it's traded at and I'll even do an intrinsic value estimate with our dividend discount model calculator that's in the intrinsic value tool here over on dividenddata.com.

[00:06:45]So, let's jump right into it. AT&T reported earnings today on Wednesday and you can see here that revenue it came in 0.75% below analyst estimates, so very close in terms of revenue, $31.56 billion in the quarter. But earnings per share it beat by 10%, $0.65 for the quarter compared to $0.59 as the estimate and I think that's a big reason why the stock is up a good bit today. In fact, it's now up 3.28% and overall AT&T is still looking pretty cheap. Over the trailing 12 months, their GAAP earnings per share is $2.97.

[00:07:19]That's a 7.6 P ratio and on a forward-looking basis, analysts are expecting $2.32 in the coming year, which is a 9.8 P ratio. And this latest quarter was definitely a good sign that's a trend upwards. In fact, year-over-year this quarter is up 20.37%.

[00:07:36]That would be from the prior year's comparable earnings and their adjusted EPS over the trailing 12 months is $2.28.

[00:07:43]So, those analyst estimates I mentioned earlier, that's based on non-GAAP EPS.

[00:07:47]So, they're projecting a little bit of growth. You can see the analyst estimates over the next 5 years for AT&T stock, and they're actually signaling pretty high growth for a company that was not growing at all, pretty much. In fact, they were declining in a lot of ways. Now, some of that was from business spin-outs, but now AT&T, it's its concentrated core telecom business, you know, broadband and wireless. And analysts are projecting pretty much 10% annual growth. And if they hit that, AT&T is looking pretty cheap. Current estimates are in the year 2030, hitting $3.54 in annual earnings per share, which at today's stock price would be a 6.5 P ratio. So, let's dive into the latest Q2 earnings for AT&T. This will give us some context around what the management was saying. And the big top line figure is that they had more than 1 million connectivity customers, and they had net year-over-year increases in fiber, fixed wireless, and post-paid phone subscribers, which is their wireless business. Overall, revenues were up 2.3% year-over-year. We had that big EPS beat that I mentioned earlier, which was up a large amount year-over-year, 20%.

[00:08:51]Adjusted operating income that came in at $7.5 billion.

[00:08:55]Cash from operations was $10.8 billion, which is up from $9.8 billion in the prior quarter, which is up from $9.8 billion in the quarter last year. Free cash flow was $4.7 billion, which is up from $4.4 billion in the year ago quarter. So, overall, the company is slowly growing. Next, I'm going to talk about the outlook and their capital allocation plan, which I think is the most interesting part of this earnings report. They're expecting improved growth in adjusted EBITDA and adjusted EPS and higher free cash flow through 2028. And they are planning to return $45 plus billion dollars to shareholders during that 2026 to 2028 period through both dividends and share repurchases.

[00:09:35]So, some of the notable things I see here, adjusted EPS, they're expecting double-digit 3-year CAGR through 2028, which for a company like AT&T, that's pretty solid growth. They're expecting $18 billion of free cash flow in 2026, $19 billion plus in 2027, and $21 billion plus in 2028. Now, the reason why this matters is because the shareholder returns, if they're going to be sustainable, they come from the free cash flow that the company has generated. So, that's how they're going to pay share repurchases and their dividend. Speaking of dividends, they mentioned that they are not expecting a dividend increase yet. They have plans to maintain its current annualized dividend at a dollar and 11 per share and approximately $24 billion of share repurchases. So, is AT&T a good buy right now in 2026? Well, I definitely like them a lot more that they're down 16.2% over the past year. Well, let's put some numbers around it. So, a large chunk of the people buying AT&T stock, they're dividend-focused investors. They want the reliable dividend income. The current dividend yield is 4.83%, which relative to a lot of the market is still a pretty high dividend yield, but on a historical basis for AT&T, it's definitely still on the lower end. This was a company that for years was a 6 to 8% dividend yield. It got up to a 10 and 11% dividend yield prior to that dividend cut. And even post-cut, there was opportunities for you to buy the stock at a 7.7% dividend yield. So, if you're trying to get the most income out of the stock relative to where the historical yield has been, it's on the lower end right now. And even on the 3-year basis, it's on the lower end since that dividend cut. Again, we were at nearly 8% for a period of time when the stock was looking super cheap. Now, on the reliability side, AT&T is a very safe dividend payer. Yes, they had that dividend cut, but right now, their cash flows are strong and the payment's in a very sustainable range. Based on earnings per share, they have a 37% payout ratio, and based on free cash flow, they have a 42% payout ratio. Now, the other factor here is the price returns, and whether or not the stock is a good value right now relative to its intrinsic value. So, I'll give you a couple ways to think about that. One is if we look at these analyst estimates for earnings per share, we can do a price projection on the stock, and taking those analyst estimates and the current 9.9 P ratio, let's assume that that P ratio stays the same. They don't get any kind of premium going forward.

[00:12:04]If they hit those EPS targets in 2030, the implied share price would be $35 a share. That would imply 52% upside, which is 10% annual growth from here just in share price. That's not including that total return of reinvesting dividends along the way.

[00:12:22]Which for a company like AT&T, again, that would be awesome.

[00:12:27]Because they have not been having good share price growth historically. And by the way, if you want to use this tool and all the other ones I'm showing, these are all pro features over on dividenddata.com, and right now we have a offer where you can get 50% off annual membership. The link is in the description and pin comment. No risk in trying it out. There's a 30-day money-back guarantee. And now I'm going to give you two different ways to think about the current valuation of AT&T. So, the first we're going to do the dividend discount model. This is all over on the intrinsic value tool. Let's you see four different methods of valuing stocks, and it pre-fills with the stock that you select. So, with AT&T, we have the $1.11 annual dividend per share. It assumed the dividend growth rate of -11% cuz of that dividend cut. But, let's move that to 0%, and right now we have a required return set at 10%, so that's our target of what we would want to get in an annual return. And if we assume 0% dividend growth from here, then the stock would have an intrinsic value of $11. But, again, that's because in this case, you're valuing the stock purely on the dividends it's going to pay you. And this is an extremely conservative way to value a company, but it's useful for some high yield dividend stocks. But relative to high yield companies, AT&T, because of the dividend cut, they're in a lower tier now. The 0% growth also is not helping them. Let's say if longer term they can get back to 3% annual growth, then the intrinsic value would be $15.72.

[00:13:49]Again, on a very conservative way to value the stock. And if they can get that up to 5%, then the company is fair valued. And given that we're talking about 10% plus annual earnings per share growth, long term, I think 5% dividend growth again, if we're talking a couple years from now, they could definitely get back to that. And if they get back to 7% dividend growth, they could even be undervalued. I'll give you another method here of calculating the intrinsic value of a company that may be more reflective of AT&T's actual cash flows they generate, since they're not paying out all of them as dividends any longer.

[00:14:20]So today we're going to look at this advanced DCF calculator over on dividenddata.com. You enter the stock, it pre-fills with all of the data, and you can edit all of the assumptions here. And we're assuming basically pretty conservative revenue growth here, single digit percentages are going out to zero in the long run. I made some adjustments here so that you could get this annual free cash flow to align closer to what those guidance numbers they just gave in the earnings report.

[00:14:44]So we have it going to $20 billion, $20.5 billion, and then $22 billion in 2028, and then kind of just leveling out there. And if we assume as our base case that the company is going to be trading at the same 8.4 price to free cash flow ratio that it is today, that would imply the stock has 20.12% upside from here with an intrinsic value of 27.47%.

[00:15:07]And if AT&T continues growing in the years to come, then that intrinsic value number grows over time as well. Now let me look at this chart which I call the value graph. And before we were calculating the intrinsic value of the company, but a A thing is also what the company is traded at in terms of their multiple based on their free cash flow, their earnings, their dividend, their operating cash flow, their revenue.

[00:15:30]That's important context to find if we're potentially at a dip right now and we're below where the fair value is based on the historical multiple the company has traded at. So here you can see the free cash flow version of this tool. Historical multiple has been 8.2 and currently we're trading at 9.24. So it's 12% above the historic free cash flow multiple. This is based over the past 5 years. If we do it based on operating cash flow, the company is 6% above its historic multiple right now.

[00:15:58]If we do it based on earnings per share, the company is actually signaling it could be a good entry point right now.

[00:16:03]It's 14% below the historic multiple.

[00:16:06]You can see the median's 8.96, the current P/E ratio 7.72. Now that is based on the GAAP accounting version. If we remember here from the earnings that we looked at earlier based on non-GAAP, it's more like 9.8. So overall my analysis, I think AT&T stock it's trading around fair value right now. I'm personally not buying the company as I'm more focused on optimizing my total return over a long time period. But if you're someone that wants a reliable dividend payment and you want a value stock that you're not going to lose potentially 30, 40% on, AT&T it's in a pretty good position. Let me know in the comments if you enjoyed this deeper dive into AT&T stock. And again, if you want to try out this tool, it's all available at dividenddata.com. The link is in the description and pinned comment. With that said, thanks for watching and I'll see you in the next video.