AT&T must protect the dividend

AT&T (NYSE:T) is the third largest US wireless provider. Their earnings report sent them soaring on their best day (+7%) since the start of COVID.

• Earnings came in higher than expected at $2.50 vs. the $2.46 projected.
• AT&T is spending heavily to build out its 5G and fiber networks.

But AT&T has a problem. Earlier this year, they lowered their free cash flow forecast over worries about late customer payments.

• This put their ability to cover their payments on their massive $134B debt load into question.
• This is also putting pressure on their juicy 6.6% dividend.

AT&T was kicked out of the S&P 500 Dividend Aristocrats Index. Why? Only companies (here’s the list) that continue to pay higher dividends each year can remain on the list. And AT&T failed to do that.

It’s all about the dividend. $T has been nearly flat for the past 20 years, sales have been declining since 2019, and the company is focused on paying down debt and its dividend.

So yesterday, investors were relieved when AT&T said they would reach their $14B free cash flow target. The dividend is safe for now.