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AT&T (T) Hikes Dividend, Issues Capital Allocation Update

Zacks Equity Research

AT&T, Inc. T recently announced a 2% year-over-year hike in its quarterly dividend payout. The proposed dividend of 52 cents per share or $2.08 on an annualized basis is payable Feb 3, 2020, to shareholders of record as on Jan 10.

Based on the closing price of $38.26 on Dec 13, the proposed dividend affirms a yield of 5.4%. A steady dividend payout is part of the long-term strategy of AT&T to provide attractive risk-adjusted returns to its stockholders. In addition, healthy dividend increases at periodic intervals have been one of its strengths.

The company also offered an update of its capital-allocation strategy. AT&T has entered into an accelerated share-repurchase agreement during the ongoing quarter, by virtue of which it aims to retire about 100 million shares in the first quarter of 2020. At the same time, the company remains confident to reach its set target of net debt-to-adjusted EBITDA ratio in the 2.5x range in 2019, improving it further between 2.0x to 2.25x by the end of 2022.

Year to date, AT&T has completed $15 billion worth of non-core asset monetization, including the $4.5-billion sale of a preferred equity interest in a subsidiary that holds cell-tower assets. This has way exceeded the original target $6-$8 billion worth of non-core asset sale to reduce its huge debt burden. The company presently expects to monetize $4 billion non-core assets by mid-2020.

Earlier, during third-quarter 2019 earnings release, AT&T had offered a three-year financial framework to drive significant improvement in margins and bottom-line growth with sustained investments and debt reduction. For the three-year period from 2020 through 2022, AT&T expects consolidated revenue growth of 1-2% per year. Adjusted earnings are expected to be significantly up to $4.50-$4.80 per share by 2022, with adjusted EBITDA margin of 35%. While adjusted EBITDA margin is expected to be stable in 2020, it is likely to grow in 2021 and 2022, driven by extensive companywide cost-reduction plan, WarnerMedia synergies, continued Mobility growth and AT&T Mexico EBITDA growth. Free cash flow is anticipated to be within $30 billion to $32 billion in 2022.

The company has gained 28.1% in the past year compared with the industry’s rise of 14.8%.



AT&T remains poised to benefit from the impending 5G boom. As the first carrier in the industry, the company has unveiled its 5G policy framework that hinges on three pillars — mobile 5G, fixed wireless and edge computing. In order to have a seamless transition among Wi-Fi, LTE and 5G services, AT&T intends to deploy a standards-based nationwide mobile 5G network in early 2020. Its 5G service entails utilization of millimeter wave spectrum for deployment in dense pockets, while in suburban and rural areas, it intends to deploy 5G on mid- and low-band spectrum holdings. It believes, as the 5G ecosystem evolves, customers can experience significant enhancements in coverage, speeds and devices. The telco giant has already introduced mobile 5G networks in parts of 12 cities and further plans to add seven more cities to the tally this year.

All these positive drivers offer compelling long-term growth opportunities for AT&T.

AT&T presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are GCI Liberty, Inc. GLIBA, Gogo Inc. GOGO and Verizon Communications Inc. VZ, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GCI Liberty is currently trading at a forward P/E of 6.05x.       
 
Gogo beat earnings estimates in each of the trailing four quarters, the average surprise being 39.1%. 
      
Verizon has a long-term earnings growth expectation of 3.2%. It delivered an average positive earnings surprise of 2.2% in the trailing four quarters.

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