Dividend sustainability concerns have weighed on AT&T (T -0.70%) in recent years. The telecom giant had previously cut its payout by nearly 50% in 2022 to retain additional cash to invest in its network and reduce debt. It took a while for that strategy to start paying off.
However, the telecom company's financial metrics have improved considerably over the past year. It expects that trend to continue in 2025. Because of that, AT&T's dividend -- which yields 4.7% these days -- looks like a solid option for investors seeking a stable income stream.
An excellent year
AT&T recently reported its financial results for 2024. The mobile and broadband company produced very solid growth. Mobility services revenues rose 3.5% (compared to its guidance in the 3% range), while broadband revenues rose 7.2% (achieving its 7%-plus forecast).
AT&T also delivered on its earnings growth expectations. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was up 3.1% (compared to its guidance in the 3% range), while its adjusted earnings were $2.26 per share (exceeding the high end of its $2.20-$2.25 forecast range).
The telecom company also produced strong free cash flow of $17.6 billion, which was above the midpoint of its $17 billion-$18 billion guidance range. That included receiving cash related to its investment in DIRECTV (free cash flow was $15.3 billion after excluding DIRECTV). It was a solid showing, considering that capital spending of $22.1 billion was above the top end of its guidance range ($21 billion-$22 billion).
AT&T produced more than enough cash to cover its dividend ($8.2 billion paid last year). That enabled it to generate substantial excess free cash, which it used to repay debt. The company reduced its net debt by $8.8 billion last year, including $5.7 billion in the fourth quarter. That helped lower its leverage ratio from about 3 times at the end of 2023 to less than 2.7x at the end of last year.
More improvements ahead
AT&T expects that 2025 will be another solid year of financial improvements. The telecom giant sees revenue growth across its business. Its 2025 guidance is that its consolidated revenue will rise in a low-single-digit range, with mobile services revenue growing toward the higher end of 2%-3% while consumer fiber broadband revenue increases at a mid-teens rate. That should drive adjusted EBITDA growth of 3% or better. However, it does expect its adjusted earnings to fall to a range of $1.97-$2.07 per share when excluding DIRECTV.
The company anticipates receiving about $5.4 billion in cash payments this year related to the sale of its investment in DIRECTV. Excluding that amount, the company expects to produce more than $16 billion in free cash flow after capital investments, which will be in the $22 billion range. That will be more than enough cash to cover its dividend, which should be around $8.2 billion again this year.
That robust post-dividend free cash flow will enable AT&T to continue strengthening its balance sheet. The company is on track to reach its leverage target in the range of 2.5x in the first half of this year. Because of that, the company expects to return additional cash to investors in the second half as it begins utilizing its $10 billion share repurchase authorization.
A rock-solid income stream
AT&T has come a long way in recent years. The telecom company's investment and deleveraging strategy is starting to pay off. It's producing growing free cash flow and is on pace to achieve its leverage ratio. That should allow it to start returning additional cash to investors later this year by repurchasing shares.
While the company doesn't currently plan to increase its dividend, its high-yielding payout has grown much safer and more secure over the past year. Because of that, it's a potentially attractive investment for those seeking a rock-solid income stream.
