AT&T Q4 Earnings: A Strong Cash Flow and Dividend Outlook

Two months prior, an analysis on AT&T Inc. (NYSE:T) suggested that despite some shortcomings in the investment picture, the stock was appealing for dividend investors. This was primarily due to the expectation of improved free cash flow (FCF) coupled with management's dedication to a stronger balance sheet.

Since that analysis, AT&T's stock price has risen approximately 5%, and their fourth quarter earnings for 2023 have been released to the public.

Q4 Results Overview

AT&T reported a solid fourth quarter, with performances meeting market forecasts. Their top-line revenue beat estimates by $560 million, totaling $32.02 billion, a 2.2% year-over-year increase. Furthermore, Q4's FCF stood at $6.4 billion, contributing to a yearly total of $16.8 billion, surpassing the earlier increasedguidance.

Notably, cash flow from operations has been on an incremental rise since Q1, fortified by two main factors: successful cost-saving initiatives yielding $6 billion in the first half of 2023, and a trajectory of an additional $2 billion in cost savings by mid-2026. Improved revenues across business segments have further helped in beefing up operations cash flow.

Investors' concerns about AT&T's hefty debt of around $130 billion have been assuaged to some degree by the reduction of long-term debt by approximately $800 million, indicating a potent cash flow and consequently, a probable sustained dividend.

Cash Cow Dynamics

Looking into the future, AT&T provided guidance for 2024, projecting a 3% growth in adjusted EBITDA—a crucial factor considering the imminent refinancing of fixed rate borrowings at higher interest rates. Additionally, they anticipate FCF figures in the range of $17 to $18 billion, marking roughly a 6% increase from 2023.

This means that the forward dividend payout ratio is expected to be around 46%, and AT&T intends to allocate around $8 billion, post-dividend and CapEx allocations, towards improving its financial profile, aiming to meet its 2.5x leverage target by the first half of 2025.

Conclusion

In summary, AT&T's Q4 2023 results solidify its status as an attractive income stock. With an approximate dividend yield of 6.5%, bolstered by robust cash generation and an improving balance sheet, the stock is a compelling choice for investors focused on yield.

The article presented is an agnostic analysis and is not influenced by any external business relationships. It provides an independent opinion on AT&T Inc. without remuneration or personal investment in the mentioned stock.

AT&T, dividend, cashflow