To The Moon

$AT&T Inc(T)$

AT&T stock offers passive income through a dividend yield currently hovering around 4%. But does that make it a buy? Not necessarily.

Dividend investors need to look beyond the yield itself. When you invest in a dividend-paying stock, you’re also exposed to fluctuations in the stock price—and those price movements can more than offset the income you receive from dividends.

So in this video, I’m going to take a deeper dive. We’ll evaluate AT&T using broader financial metrics—not just the dividend yield. Yes, we’ll cover the yield, but we’ll also examine AT&T’s revenue growth history, profit margins, return on invested capital, and valuation, using both the forward price-to-earnings and price-to-free-cash-flow ratios. Plus, I’ll walk you through my proprietary discounted cash flow (DCF) model to determine AT&T’s fair value—and ultimately share whether I think the stock is a buy at current prices.

Earning Overview

AT&T (T) has delivered strong results for the first quarter of 2025, surpassing Wall Street expectations. The telecom giant continues to leverage its diversified services, including mobility and consumer wireline, to generate stable revenue growth. The company’s efforts to focus on strategic initiatives like fiber expansion and service bundling are showing promising results.

Key Financial Highlights:

• Revenue: AT&T’s total revenue for Q1 2025 reached $30.6 billion, representing a 2% year-over-year increase. This growth was driven by strong performance in the mobility sector and an increase in consumer wireline revenues, particularly through fiber offerings and bundling.

• Net Income: The company reported a net income of $4.7 billion, an impressive 24% increase compared to $3.8 billion in the same period last year.

• Earnings Per Share (EPS): AT&T’s reported EPS was $0.61, up from $0.47 in Q1 2024. However, the company’s adjusted EPS came in at $0.51, slightly below analysts' expectations of $0.52.

One bright spot is AT&T’s improving operating margin, which has reached 19.72% over the trailing 12-month period. This margin expansion comes after the company exited underperforming business segments and capitalized on earlier 5G investments. A nearly 20% margin is solid and gives the company flexibility—especially when it comes to managing its substantial debt.

Revenue Growth: Low Expectations in a Mature Market

AT&T’s revenue history over the past decade has been quite volatile—mainly due to acquisitions and divestitures. The company operates in a mature, slow-growth industry. So future growth will likely come from incremental sources: think adding extra devices like tablets to existing wireless plans or modestly increasing monthly rates.

In short, there’s limited room for substantial revenue growth. Investors should expect low to mid-single-digit top-line growth at best over the next decade.

Fundamental Analysis

Return on Invested Capital (ROIC): Subpar Performance

Unfortunately, AT&T’s ROIC sits at just 4.37%, well below its weighted average cost of capital (WACC), which I’ve calculated at 7.85% using my proprietary DCF framework. This means the company is not creating value for shareholders based on its capital deployment—another red flag for long-term investors.

Guidance

One of the standout achievements of AT&T's Q1 results is its subscriber growth, particularly in its mobility and fiber businesses.

Postpaid Phone Net Adds: AT&T added 324,000 postpaid phone subscribers in the quarter, significantly exceeding analysts’ expectations of 258,300. This continued growth is indicative of the strong demand for its wireless services, especially as more consumers look to upgrade their mobile devices.

Fiber Net Adds: The company also reported a solid gain of 261,000 fiber subscribers, meeting expectations and continuing to expand its footprint in the rapidly growing fiber-optic broadband market. Fiber continues to be a key focus for AT&T, which is looking to expand high-speed internet access across the country.

Bundling Success: AT&T’s strategy of bundling services, such as offering fiber internet alongside wireless phone plans, has proven successful. The company noted that over 40% of its fiber households also subscribed to wireless services, showcasing the strength of its bundled offerings.

This strong subscriber growth is especially critical as the company moves forward with its plan to divest non-core businesses, like its stake in DirecTV, and focus more heavily on its core telecom and media offerings.

Free Cash Flow

The company generated $3.1 billion in free cash flow, a solid increase from $2.8 billion during the same quarter in 2024. The ability to maintain strong cash flow is crucial for AT&T, especially as it continues to focus on debt reduction and capital expenditures.

Dividend Yield: Lower Now but Still Relatively Attractive

AT&T’s dividend yield was significantly higher in 2024—approaching 7% at times. Since then, the stock price has risen, which naturally brings the yield down. Yield is calculated by dividing the annual dividend per share by the stock price—so a higher stock price results in a lower yield.

At 4%, AT&T’s yield still looks attractive compared to other income stocks. But that doesn’t tell the whole story.

Technical Analysis

Typically, I present my charts starting with the shortest-term outlook, but in this case, I'll flip that order. While AT&T has a dedicated following, technical analysis often picks up on shifts in market dynamics—like the pull of "gravity"—long before many fundamental perspectives catch on.

Looking at the monthly chart, we can see that the stock’s recent surge has pushed its valuation to levels not seen since late 2007. Back then, like much of the broader market, AT&T’s stock saw a massive decline—falling as much as 50% from peak to trough. Though dividends helped offset the losses, that recovery took only about 16 months, and the net result was still a significant drop. While I can’t predict exactly how things will unfold this time, I can say with confidence that the risk is considerably high.

In the short term, the 4% yield becomes more appealing, especially as T-bill rates fall. The payout ratio is also manageable. However, despite these factors, I’m maintaining my sell rating, which might upset the loyal AT&T shareholders. I respect their commitment over the past couple of years, but the reality is that this stock, like any other, remains vulnerable to significant price swings. That’s just the nature of the market today.

Risks and Challenges

And speaking of debt—AT&T carries over $123 billion in long-term debt, making it one of the most indebted companies in the world. The company does generate enough cash flow to meet its obligations, but such a heavy debt load is still a concern.

That said, AT&T's business model supports recurring cash flows. People are unlikely to cancel their cell phone plans—even during a recession—because mobile connectivity is now a basic utility. Compared to total household expenses, monthly wireless bills are relatively small and essential.

Valuation

AT&T's stock appears reasonably valued at first glance. It trades at a forward price-to-earnings ratio of around 12x and a forward EV-to-EBITDA of 8x. The company expects to generate $16 billion in free cash flow this year, which implies a price-to-free-cash-flow ratio of 12x—equivalent to a free cash flow yield of roughly 8%. That’s a solid return, particularly after capital expenditures, and could provide consistent value for shareholders.

However, an 8% free cash flow yield isn’t an overwhelming bargain. It essentially mirrors a 4% premium over the 10-year Treasury yield, factoring in equity risk. Still, AT&T does offer the potential for steady—if slow—fundamental growth.

There are, however, some yellow flags to keep in mind. Current valuation multiples are beginning to drift above historical averages, suggesting that recent gains have been driven not only by earnings improvement but also by multiple expansion. This trend is also reflected in the dividend yield: while the historical average is around 9%, the current yield sits at just 4%, indicating that the stock may not offer the same level of income it once did.

In short, while AT&T remains a solid fit for conservative portfolios, the valuation metrics signal some caution. These are key considerations not just for the stock’s current price, but for the broader investment thesis.

Based on my DCF valuation model, AT&T’s intrinsic value is around $21 per share, while the stock currently trades closer to $27. That suggests the stock is overvalued by roughly 30%.

Looking at other valuation multiples, AT&T trades at:

• 10.39x price-to-free-cash-flow

• 11.85x forward price-to-earnings

Those are the highest levels the stock has seen in years. Historically, AT&T has traded at lower multiples due to its low growth, high debt, and weak capital returns.

Market sentiment

Analysts have raised their price targets for AT&T, with JPMorgan increasing its target to $31 from $28, and other firms also adjusting their targets upward. AT&T's stock price has been volatile, with recent fluctuations reflecting investor sentiment and broader market trends. While analysts maintain a positive outlook on AT&T, recent options market activity suggests some caution among investors. Prospective investors should consider both analyst projections and market sentiment before making investment decisions.

Conclusion

So, is AT&T stock a buy for dividend investors? Based on the data, I’d say no. At current levels, I’d rate AT&T as a hold. While the dividend is decent, the overall fundamentals—low growth, high debt, subpar capital returns, and a stretched valuation—don’t support a strong investment case right now.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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