AT&T (NYSE:T) stock has long been a darling of dividend investors. It’s simple to see why. The telecom behemoth’s stock presently yields a whopping 7%, making it one of the highest-yielding companies in the S&P 500 broad market index.
Let’s take a deeper look at AT&T’s business fundamentals to determine whether its stock is an excellent long-term investment at these current levels.
The AT&T stock bull argument
Wireless and broadband internet services have become critical utilities for millions of people. Telecommunications firms generally have stable customer and revenue bases, allowing them to produce abundant, constant free cash flow. This is primarily true for AT&T stock (NYSE:T) , which investors like for its consistent cash flow generation and big cash payments.
However, when AT&T purchased Time Warner in 2018, it deviated from its core telecom activities. The $85 billion transaction hit AT&T with billions of dollars in new debt. Worse, most of the growth and cost-cutting promises made by management did not materialize.
AT&T has refocused its efforts on its greatest businesses under new CEO John Stankey. AT&T liquidated its Warner Media holdings in April by combining them with Discovery. The newly amalgamated firm, Warner Bros. Discovery (WBD), now has the potential to become a formidable player in the media sector due to its larger size.
AT&T also gained 316,000 users to its high-speed fiber internet service. This helped to drive a 22% year-over-year increase in total fiber customers to 6.6 million.
Investors should be aware of the following risks:
AT&T had a massive $131.9 billion in net debt after the second quarter. If interest rates continue to climb, this large debt load might become much more onerous. To mitigate this risk, AT&T intends to spend a large portion of its extra free cash flow after dividend payments to pay down debt. AT&T should invest around $6 billion toward debt reduction, with a predicted $14 billion in free cash flow in 2022 and dividend payments of about $8 billion. Cost-cutting strategies and new asset sales might help to decrease the telecom giant’s debt burden even more.
Furthermore, if AT&T continues to depend on significant discounts and promotions to compete with T-Mobile for postpaid phone users, its profit margins may be further strained.
So, is AT&T stock a good investment?
AT&T’s profits growth might surprise to the upside due to significant potential in 5G cellular services and high-speed fiber internet. A more streamlined operating structure and careful financial management could help the telecom behemoth generate even greater value for investors.
Competitive risks should not be disregarded, but they are certainly already included in AT&T’s stock (NYSE:T) price. As a result, investors looking for a high-yielding, low-risk dividend investment may consider AT&T.
Featured Image – Megapixl © Luckydoor
Author Okoro Chinedu 
