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.
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.
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.
FAST Graphs Analyze Out Loud on AT&T:
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Source: FAST Graphs