AT&T (NYSE: T) stock appears to be benefiting from its most promising outlook in years. Earlier in the decade, the stock suffered after the company slashed its dividend in 2022 following 35 consecutive years of increases.
However, the telecom stock now trades at its highest levels since 2019, and the company's earnings report for the first quarter of 2025 indicates it is back on track. But can that growth continue? Let's take a closer look.
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Admittedly, AT&T gave investors little to like in recent years. The company made costly mistakes in its purchases of DirecTV and what was Time Warner in the previous decade, later selling both businesses at a considerable loss. Those losses forced the eventual dividend cut.
In contrast, Verizon and T-Mobile grew through their single-minded focus on their communications networks. Nonetheless, AT&T eventually corrected its course, and its exclusive focus on wireless and fiber seems to connect with customers and investors alike. In Q1, it reported 324,000 postpaid wireless net additions and 261,000 net additions on the fiber side of the business.
Despite such improvements, AT&T is a mature company, with its nearly $31 billion in Q1 revenue growing by only 2% yearly. Still, its Q1 net income attributable to AT&T was just under $4.4 billion, an annual increase of 26%. Although costs and expenses rose more rapidly than revenue, the $1.4 billion of equity in net income of affiliates helped boost its profits.
As mentioned before, AT&T walked away from 35 straight years of payout hikes. However, it remains a dividend stock. Since 2022, it has offered shareholders $1.11 per share annually in payouts. Its dividend yield of 4.1% is close to triple the S&P 500 index's average return of 1.4%.
It may be able to afford to keep that dividend. In Q1, it cost the company $2.1 billion, but with more than $3.1 billion in free cash flow for the quarter, AT&T had plenty of cash available for other purposes.
Additionally, it is making progress against its massive debt burden. Indeed, holding $126 billion in total debt adds strain to the balance sheet considering its $120 billion in book value. Still, it has paid off over $7 billion in debt over the last year, enough progress that the company will probably not have to consider another dividend cut.
Investors seem to have responded well to that strength. Its stock is up by almost 75% in total returns over the last year and now sells near its highest level since the beginning of the pandemic.
Despite those improvements, it remains an inexpensive stock. Yes, its P/E ratio of 19 rose significantly over the last three years and made AT&T's stock more expensive than its competitor, Verizon, at 10 times earnings.
Nonetheless, its stock slightly outperformed T-Mobile's over the last year, a notable feat considering that T-Mobile has long had the best-performing stock in the telco space. T-Mobile also trades at 27 times its earnings, meaning investors have to pay more for a stock that now lags AT&T's performance.
T Total Return Level data by YCharts
Furthermore, its 4.1% dividend yield is far above T-Mobile's at 1.2%. Thus, income investors also have good reason to look at the stock in a new light.
Given its recent performance, both income and growth investors finally have good reason to take an interest in AT&T stock. Despite its 2022 dividend cut, its current yield far exceeds that of the S&P 500 and its competitor T-Mobile.
Moreover, AT&T's stock outperformed T-Mobile over the last year, and its relatively low P/E ratio incentivizes both growth and income investors to take an interest in the stock.
Admittedly, AT&T is a mature company, meaning growth investors may still be reluctant to buy shares despite its 12-month stock performance. However, with a high dividend yield and low P/E ratio, investors could profit by buying shares at these levels.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.