T
AT&T
Telecom
Scores
Key Metrics
P/E
16.6
Yield
4.57%
Payout
20.3%
ROE
5.7%
Debt/EBITDA
2.5x
EV/EBITDA
2.5x
Summary
AT&T represents a high-quality, essential service oligopoly that has successfully refocused on its core telecom business. The 4.6% dividend is exceptionally well-covered by a low 20% payout ratio and strong free cash flow, with management committing to significant shareholder returns. Recent negative sentiment from analyst downgrades and data breach news appears to be a temporary issue, creating a potential entry point for long-term investors. Worth considering for new positions for those seeking stable, high-yield income from a US market leader.
Sector Context
As a telecom major, AT&T operates in a capital-intensive oligopoly where significant debt is normal to fund infrastructure. Its Net Debt/EBITDA of 2.5x is well within acceptable norms for the sector. The business provides an essential service with stable, recurring, subscription-based revenue, making it an ideal fit for a dividend-focused strategy.
Temporary Opportunity Identified
The market continues to price in a sentiment hangover from past strategic missteps (Time Warner acquisition) and a 2022 dividend reset. This is compounded by recent short-term negative news, including a data breach settlement and an analyst downgrade, creating an oversold condition despite solid underlying fundamentals and a clear, focused strategy.
✓ Why We Like It
- • Operates as a strong oligopoly in the essential US telecommunications sector, creating high barriers to entry and a durable competitive moat.
- • The 4.57% dividend yield is highly sustainable, supported by an exceptionally low 20.28% payout ratio and robust free cash flow of $15.3B.
- • Management has successfully refocused the company on its core 5G and fiber businesses after divesting media assets, and is actively reducing debt to a manageable 2.5x Net Debt/EBITDA.
- • Recent negative sentiment (analyst downgrade, data breach news) appears to be a temporary issue creating an oversold condition, not a reflection of permanent business model deterioration.
- • A newly announced $40B+ shareholder return program (dividends and buybacks) signals strong management confidence in future cash flows.
⚠ What to Watch
- • Slowing internet subscriber growth noted in recent reports highlights the intense competitive pressure from Verizon and T-Mobile, which could impact future growth rates.
- • The P/E ratio of 16.6x is at the higher end of the strategy's ideal range (8-15x), suggesting the stock is no longer in deep value territory and may have limited upside from multiple expansion.
- • Recent data breach headlines, while likely a one-off financial event, create negative sentiment and potential for short-term price volatility.
Analysis date: 2025-12-17
Disclaimer: This information is for educational purposes only. Not financial advice.