Down 9%, Should You Buy the Dip on AT&T?

Globe and Mail

16-05-2025

AT&T 's (NYSE: T) stock hit a 52-week high of $29.03 per share on April 3. That represented a gain of more than 60% over the previous year. Investors appear to have embraced AT&T for three reasons:
Its wireless business was growing at an impressive rate.
Its high dividend became even more attractive as interest rates declined.
It was insulated from the rising tariffs and trade wars.
Today, however, AT&T's stock trades about 9% below that 52-week high. Should investors consider this slight pullback to be a good buying opportunity? Or could it sink even further over the next year?
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How did AT&T revive its business?
AT&T tried to become a pay-TV giant by acquiring DirecTV in 2015, Time Warner in 2018, and other smaller media assets. However, tough competition from Netflix and other streaming media platforms crushed its costly attempt to build a streaming media empire. As AT&T poured more cash into its media businesses, its core wireless and broadband businesses struggled to expand.
In 2021 and 2022, AT&T finally divested DirecTV, Time Warner, and most of its media assets. By abandoning its dreams of building a media empire, AT&T freed up more cash to expand its 5G and fiber businesses as it reduced its debt. That streamlined business has consistently gained more postpaid wireless and fiber broadband subscribers over the past two years.
Net Additional Subscribers
2023
2024
Q1 2025
Postpaid Phone Service
1.7 million
1.7 million
324,000
Fiber Broadband Service
1.1 million
1.0 million
261,000
Data source: AT&T.
AT&T is also growing faster than Verizon Communications, which only grew its postpaid wireless subscribers by 449,000 in 2023 and 851,000 in 2024. But both telcos are growing more slowly than T-Mobile US, which added 3.1 million postpaid subscribers in both 2023 and 2024.
How safe is AT&T's dividend?
AT&T continues to gain new subscribers at a healthy clip, but its free cash flow (FCF) declined over the past two years. That drop was caused by its higher investments in its 5G and fiber networks, as well as more aggressive promotions to keep pace with Verizon and T-Mobile.
Metric
2023
2024
Q1 2025
Free Cash Flow
$16.8 billion
$15.3 billion*
$3.1 billion
Dividend Payments
$8.1 billion
$8.2 billion
$2.0 billion
Data source: AT&T. *Excluding the sale of its remaining stake in DirecTV.
AT&T also notably cut its dividend after it spun off Time Warner and merged it with Discovery to create Warner Bros. Discovery in 2022. It subsequently kept its annual payout at $1.11 per share but still generates plenty of FCF to cover its dividends.
However, AT&T's forward dividend yield of 4.1% is still much lower than Verizon's forward yield of 6.3%. It's also lower than the 10-Year Treasury's yield of 4.5%. That lower yield and lack of annual dividend hikes might make AT&T a bit less appealing to income-oriented investors.
What's next for AT&T?
For 2025, AT&T expects to generate "at least" $16 billion in FCF (excluding the sale of its remaining 70% stake in DirecTV) as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increases more than 3%. Analysts expect its adjusted EBITDA to rise 3% to $46 billion.
With an enterprise value of $303 billion, the company looks cheap at just 19x this year's FCF and 7x its adjusted EBITDA. By comparison, Verizon trades at 16x and 6x this year's FCF and adjusted EBITDA, respectively.
While AT&T looks cheap and pays a decent yield, dividend-driven investors might gravitate toward Verizon's higher yield, consistent dividend hikes, and lower valuations. AT&T's downside potential might be limited -- but it won't set any new record highs anytime soon. It still seems like a safe-haven buy at these levels, but investors should temper their near-term expectations.
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