AT&T’s Dividend Coverage with Free Cash Flow Is Solid

Image Source: AT&T

By Brian Nelson, CFA

On July 24, AT&T (T) reported mixed second quarter results with revenue coming up short of consensus, but non-GAAP earnings per share coming in line with what the Street was looking for. Revenue for the second quarter declined 0.4% on a year-over-year basis “due to lower Business Wireline service revenues and declines in Mobility equipment revenues driven by lower sales volumes.”

Adjusted operating income came in at $6.3 billion versus $6.4 billion in the year-ago quarter. Net income attributable to common stock was $3.5 billion versus $4.4 billion in the same period last year. Adjusted earnings per diluted share was $0.57 versus $0.63 in the same period a year ago. Adjusted EBITDA improved to $11.3 billion from $11.1 billion in the year-ago quarter, however.

Though AT&T’s headline results left a lot to be desired, its cash management remains the focal point for investors. Cash flow from operations fell $0.8 billion from the same period a year ago, but free cash flow improved to $4.6 billion from $4.2 billion in the year-ago quarter. For 2024, management is targeting free cash flow in the range of $17-$18 billion and adjusted earnings per share of $2.15-$2.25, with expectations for continued adjusted EPS growth in 2025.

Dividend coverage looks much better at AT&T these days. For the first six months of 2024, free cash flow was $7.7 billion, which comfortably covered the company’s cash dividends paid of $4.1 billion. Free cash flow after dividends was $3.58 billion for the first six months of the year, and management’s 2024 free cash flow guidance indicates a stronger back half of dividend coverage. AT&T has a huge net debt position, but free cash flow coverage of this 6.1% yielder is a sight to see. We’re considering the company for addition to the High Yield Dividend Newsletter portfolio.