AT&T: Dividend Cut Is Unlikely - This Is Why

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T's Dividend Investment Strategy Still Looks Safe

After Intel (INTC) trim its dividends aft 8 years of continuous growth, we deliberation it is simply a bully clip for america to analyse if AT&T's (NYSE:T) dividend is safe, due to their akin business of precocious superior expenditure and elevated debts.

As likewise discussed successful our previous INTC article, we judge that, for illustration INTC, it is improbable that T will wholly suspend its dividends moving forward, and we spot nan worst lawsuit script arsenic a minimal cut. In this case, we are cautiously much optimistic owed to nan promising signs frankincense far.

The telecom institution had much than capable rate travel to prolong its yearly dividends of $8.05B, owed to nan robust rate from operations of $32.02B and Free Cash Flow [FCF] procreation of $12.39B successful FY2022. Particularly, nan institution besides provided an optimistic FCF guidance of $16B aliases much (+29.1% YoY), suggesting its expertise to "more than screen its existing commitments."

T is reportedly looking to divest moreover much non-core assets arsenic well, namely its cybersecurity unit antecedently weighted astatine $600M, connected apical of those discussed successful our erstwhile article. It is evident that nan institution seems wished successful reducing its net debts to $100B by 2025. The number suggests an fantabulous moderation from its highest nett debts of $161.74B successful FQ4'18 and nan $129.19B (-11.1% YoY) reported successful FQ4'22.

The adjacent important mobility is probably: will T summation its dividend payout by a ample percent successful FQ1'23? We statement nan zero dividend maturation since FQ2'22 levels of $0.2775 and pre-spin disconnected levels of $0.52.

We reckon that it is unlikely, since nan macroeconomic outlook remains uncertain, pinch nan company's guided superior expenditure remaining precocious astatine ~$24B (inline YoY) successful FY2023. Due to nan inherent value of 5G and fibre investments to nan halfway telecom business, we concur pinch nan company's sustained committedness indeed.

On 1 hand, astir of T's semipermanent debts of $129.19B are good staggered done 2097, pinch a reasonable weighted mean liking complaint of 4.1% arsenic of December 2022. On nan different hand, nan institution is besides looking astatine $7.46B of debts maturing successful 2023, pinch a full of $14.89B owed wrong nan adjacent 3 years.

Therefore, we posit that investors mightiness spot a minimal $0.01 hike successful FY2023 to yearly dividends of $1.12, arsenic it has historically done pre-pandemic. Even so, investors request to intimately show T's guardant execution and macro risks, owed to nan imaginable effect to its apical and bottommost lines.

Particularly, INTC had nary prime but to trim its dividends owed to nan drastic -20.2% YoY effect connected nan apical statement and -59.6% YoY connected nan bottommost statement successful FY2022, mostly from nan ongoing PC request destruction.

However, it appeared that nan pessimism mightiness person been priced in, pinch nan INTC banal minimally declining by -4.8% successful nan days aft nan announcement of nan steep -65.8% dividend cut connected February 22, 2023.

We must besides punctual investors that 1 does not usually put successful T for precocious maturation aliases precocious returns, owed to its humanities 5Y gross CAGR of -8.3% and 5Y Total Price Returns of -30.9%. If investors were looking for precocious maturation telecom stocks, they astir apt would person chosen T-Mobile (TMUS) instead, which notably does not salary a dividend.

If investors were looking for higher return trades which people came pinch higher risks, they would person turned to cyclical stocks, specified arsenic oil/ gas/ commodity/ shipping companies, which usually paid adaptable dividends. For example, Chevron (CVX) offered TTM dividends of $5.77/ yields of 3.55%, ZIM Integrated Shipping Services (ZIM) - TTM dividends of $27.55/ 125.31%, aliases Broadcom (AVGO) - TTM dividends of $16.9/ 2.93%.

This leads america to surmise that T whitethorn proceed playing its domiciled arsenic a semipermanent clasp dividend income stock, pinch nan institution highlighting its position "among nan best dividend-yielding stocks successful nan United States and successful nan Fortune 500."

Therefore, nary matter really elevated its indebtedness business is, we reckon that T whitethorn proceed delivering dependable passive income to dividend seeking investors, importantly aided by nan $6B successful cost savings successful 2023 and renewed attraction connected its halfway telecom business for nan foreseeable future.

So, Are T Stock A Buy, Sell, aliases Hold?

T 1Y EV/Revenue and P/E Valuations

T 1Y EV/Revenue and P/E Valuations

S&P Capital IQ

T is presently trading astatine an EV/NTM Revenue of 2.47x and NTM P/E of 7.85x, higher than its 3Y pre-pandemic EV/Revenue mean of 2.24x though little against its P/E mean of 10.76x. Otherwise, it is trading somewhat inline pinch its 1Y P/E mean of 7.60x.

Based connected its projected FY2024 EPS of $2.51, we are looking astatine a mean value target of $19.70, suggesting minimal upside imaginable from existent levels.

T 1Y Stock Price

T 1Y Stock Price

Trading View

This is unsurprising, owed to nan melodramatic 33% betterment from nan October bottommost of $14.46 to $19.24 astatine nan clip of writing. Notably, we whitethorn spot T waste and acquisition sideways from present since nan banal is adjacent its intermediate support level.

Due to nan imaginable underperformance, we for illustration to complaint T arsenic a Hold here. Investors whitethorn beryllium good advised to hold for different dip to nan October bottommost successful nan $15s aliases December bottommost successful nan $17s earlier adding, for an improved separator of information to our value target.

Those levels would besides supply an improved guardant dividend output of 7.46% aliases 6.58%, against its 4Y mean of 6.95% and assemblage median of 3.26%. Patience whitethorn beryllium much prudent here, successful our view.

This article was written by

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I americium a full-time expert willing successful a wide scope of stocks. With my unsocial insights and knowledge, I dream to supply different investors pinch a contrasting position of my portfolio, fixed my peculiar background.Prior to Seeking Alpha, I worked arsenic a professionally trained designer successful a backstage architecture practice, pinch a attraction connected nationalist and healthcare projects. My qualifications include:- Qualified Person pinch nan Board of Architects, Singapore.- Master's successful Architecture from nan National University of Singapore.- Bachelor successful Arts from nan National University of Singapore.If you person immoderate questions, consciousness free to scope retired to maine via a nonstop connection connected Seeking Alpha aliases time off a remark connected 1 of my articles.

Disclosure: I/we person a beneficial agelong position successful nan shares of TMUS, AVGO, INTC either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: The study is provided exclusively for informational purposes and should not beryllium considered master finance advice. Before investing, please behaviour individual in-depth investigation and utmost owed diligence, arsenic location are galore risks associated pinch nan trade, including superior loss.

Editor: Naga

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