Introduction
AT&T reported earnings today and although they beat expectations, the stock is trading down over 2% so far. The company was light on revenues compared to 2019 but did report free cash flow for the year of $27.5 billion, slightly below the $29 billion reported in 2019. However, on a promising note to some, the company did put their cash flow to good use. For starters, they reduced their debt maturities over the next 5 years by about 50% and lowered their weighted average interest rate on debt to only 4%. On the conference call, CEO John Stankey articulated three priorities for the year. First, they are looking to grow their direct customer relationships, second, to transform their operations to be more effective and efficient, and third, and most importantly, to use their free cash flow after dividends to pay down debt.
On the negative side, the company did not increase their dividend as some had hoped, but did commit to maintaining it. Anyone interested in learning more about their results can follow this link to their website.
Since I have had several requests from channel subscribers to cover AT&T, I thought this would be the appropriate time. Consequently, this video will focus on AT&T by the numbers with the primary focus on current valuation and future potential. To me, the bottom line is a very attractive and well covered 7% current dividend yield that is very high considering today’s low interest rates despite not growing this year. Additionally, since the great recession, AT&T has only grown their dividend at an average rate of 2.1% per annum. Therefore, income-oriented investors are not really losing too much. With all this said, low valuation not only mitigates much of the risk, but also positions buy-and-hold investors with significant capital appreciation potential mid-term.
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Disclosure: Long AT&T.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.