After a period of underperformance, AT&T (T) has regained its footing and is demonstrating strong growth. The company’s strategic shift towards a more focused business model, commitment to shareholder returns, attractive dividend yield, and undemanding valuation make it a compelling investment opportunity.
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Prioritizing Shareholder Returns
Historically known for its reliable dividends, AT&T faced criticism after reducing its dividend in 2022 following the Warner Brothers spinoff. However, this strategic decision now appears justified, as AT&T is steadily regaining the trust of dividend investors. The stock currently offers a compelling 4.9% yield, significantly higher than the market average and treasury bond yields. Furthermore, with a dividend coverage ratio of just under 50%, the dividend appears safe and sustainable.
Reinforcing its commitment to shareholders, AT&T recently announced a multi-year strategic plan to return $40 billion to shareholders over the next three years. This will be achieved through a combination of $20 billion in dividend payments and $20 billion in share buybacks. The initial share buyback authorization of $10 billion before the end of 2026 signals management’s confidence in the company’s undervaluation. Share buybacks are beneficial for investors as they reduce outstanding shares, increasing earnings per share, and are particularly advantageous for high-dividend stocks like AT&T.
A Streamlined and Focused Business Model
AT&T’s Investor Day highlighted the company’s renewed focus on its core competencies. Previous ventures into the entertainment sector, such as the acquisitions of DirectTV and Time Warner, proved to be missteps. However, the company has since divested these non-core assets, reducing debt by $25 billion and allowing it to concentrate on its strengths: 5G and fiber connectivity. The upcoming sale of the remaining 70% stake in DirectTV to TPG further solidifies this strategic shift.
AT&T aims to reach 50 million fiber locations by 2029 and complete the modernization of its 5G network by 2027. Investments in these areas have already yielded significant returns, with 10 million new cell service subscribers since mid-2020 and a $9 billion annual increase in Mobility Services revenue. Fiber customer revenue has also nearly doubled in the last three years.
Attractive Valuation and Growth Potential
Despite a 40% surge in share price over the past year, AT&T remains attractively valued. Trading at just 10.7 times 2025 consensus earnings estimates, the stock is significantly undervalued compared to the broader market, with the S&P 500 trading at over 25 times earnings. This lower valuation provides a margin of safety and potential for significant upside. Furthermore, AT&T’s defensive nature makes it an appealing option in a market characterized by record highs and elevated valuations.
Analyst Outlook and Conclusion
Wall Street analysts currently rate AT&T as a Moderate Buy, with an average price target of $24.15, implying a modest upside potential. However, considering the company’s strategic repositioning, commitment to shareholder returns, and attractive valuation, AT&T presents a compelling investment case for long-term growth. The company’s streamlined business model, focus on core competencies, and significant investments in 5G and fiber position it for sustained success in the evolving telecommunications landscape. The attractive dividend yield further enhances its appeal to income-seeking investors.
