High-yield dividend stocks often attract renewed attention when markets anticipate a shift in monetary policy. With the Federal Reserve signaling a potential long-term rate-cutting cycle in 2025 despite lingering inflation concerns, income-generating equities have moved into the spotlight in 2024.
AT&T (T -0.44%) has emerged as a standout performer in this environment, delivering a remarkable 41.5% year-to-date gain (as of Dec. 3, 2024), substantially outpacing the S&P 500's 26.8% rise so far this year. Below I'll examine whether the telecommunications giant's recent momentum and strategic initiatives outlined during its recent 2024 Analyst & Investor Day still make it a compelling choice for income-focused portfolios.
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Network expansion drives future growth
AT&T's bold vision centers on becoming America's premier connectivity provider through strategic network investments. The company plans to reach more than 50 million locations with fiber connectivity by 2029, including approximately 45 million through organic deployment and an additional 5 million via its Gigapower joint venture with BlackRock.
During the company's 2024 Analyst & Investor Day presentation, CEO John Stankey emphasized that these investments will enable AT&T to build the largest, highest-capacity, and lowest marginal cost network in America. By 2027, AT&T expects to complete the modernization of its 5G wireless network with open technology, providing deep mid-band spectrum coverage to more than 300 million people by late 2026.
Growing dividends and shareholder returns
AT&T's current 4.89% dividend yield, while trailing the peer-group average of 6.5%, represents a significant income opportunity for investors. At its December 2024 analyst and investor day presentation, management committed to maintaining the annual dividend at $1.11 per share, demonstrating confidence in its cash-generating capabilities.
The telecommunications giant plans to return more than $40 billion to shareholders through 2027, balancing dividend payments with share repurchases. This commitment includes approximately $20 billion in total dividend payments and an initial $10 billion share-repurchase program, with plans for an additional $10 billion in buybacks, pending board approval.
Management has also earmarked $10 billion for strategic flexibility through 2027. This additional capacity could fund organic growth initiatives, strategic acquisitions, debt reduction, or even supplement shareholder returns, providing valuable optionality as market conditions evolve.
Competitive advantages and financial outlook
AT&T's network-modernization strategy positions it for sustained growth in the evolving telecommunications landscape. The company anticipates generating more than $16 billion in free cash flow by 2025, growing by approximately $1 billion annually to exceed $18 billion by 2027.
Management projects consolidated service revenue growth in the low single digits annually from 2025 through 2027. Consumer fiber broadband revenue is expected to grow in the mid-teens annually, reflecting AT&T's successful transition from legacy copper networks to high-growth fiber services.
The company's exit from legacy copper operations across the majority of its wireline footprint by 2029 represents a strategic pivot. This transformation allows AT&T to focus resources on its most profitable and fastest-growing segments.
Attractive valuation metrics
AT&T shares currently trade at 10.4 times forward earnings, reflecting a dramatic discount to the broader large-cap space. This valuation gap becomes particularly striking when compared to the S&P 500's forward price-to-earnings ratio of nearly 24, suggesting Wall Street might be undervaluing AT&T's transformation story.
After all, the bear case largely ignores AT&T's aggressive efficiency initiatives. Management has targeted more than $3 billion in run-rate cost savings by the end of 2027, with $2 billion expected by mid-2026 -- a concrete plan that could significantly boost margins and free cash flow.
These efficiency gains, combined with AT&T's deeply discounted valuation relative to the broader market, create an intriguing setup for patient investors. The market appears to be pricing in limited growth potential, while management executes a clear strategy to enhance operational performance and shareholder returns.
Is AT&T a solid dividend pick?
AT&T's transformation from a traditional telecom provider to a focused connectivity leader demonstrates a clear strategic vision. The combination of network expansion, operational efficiency, and substantial shareholder returns provides multiple catalysts for long-term value creation.
While competitive pressures persist in the telecommunications sector, AT&T's bargain-basement valuation suggests meaningful upside potential. The company presents a compelling investment case, backed by tangible business improvements for investors seeking high-yield opportunities with growth potential.
All in all, AT&T stock scans as a solid addition to a well-rounded dividend portfolio, despite its hefty run-up in 2024.
