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.
However, on a promising note to some, the company did put
their cash flow to good use.
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.
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