Summary
- D is for debt. AT&T is laser focused on getting its balance sheet back in shape.
- D is for dollars and the cash flow that AT&T generates. Investors might be surprised how effectively the company generates free cash flow.
- D is for the dividend. AT&T is the kind of stock that will let you sleep comfortably at night knowing each year your effective yield gets bigger.
AT&T (NYSE: T) has spent the last five years trying to transform itself, from a wireless and wireline operator to a diversified media company. At present, AT&T operates a mobility business, an entertainment business, a media business, international operations, and an advertising arm. Investors are likely first attracted to AT&T because of its solid yield. However, there is much more going on here than just a nice payout. In fact, the future of AT&T comes down to three D’s – debt, dollars, and its dividend.
The $180 billion mountain
It’s no secret that transforming AT&T meant taking on significant debt. The acquisition of DirecTV in 2014, required paying about $28.50 for each DirecTV share. AT&T’s next step was to acquire Time Warner in 2018, where it paid $53.75 per share in cash, taking on over $40 billion in debt. After the Time Warner merger, AT&T announced it now has “$180.4 billion in net debt.” A company with a mountain of debt, paying a big dividend, is going to get a lot of scrutiny.
