For the year 2025, I'm highlighting my premier choice for dividend-yielding stocks.
The shares of telecom giant AT&T (T, -0.70%) have experienced a significant increase, jumping approximately 35% since the beginning of this year. This surge in stocks has rewarded investors who had endured years of struggles. The company's past attempts to transform into a media conglomerate, which involved accumulating debt through expensive acquisitions, have mostly been rectified. The forthcoming sale of its 70% stake in DIRECTV, expected to close in the second half of 2025, signifies the firm's final exit from the media industry.
As AT&T refocused its attention on what it does best, wireless and broadband services, the stock regained its footing. The company's robust cash flow generation, reliable wireless growth, a more balanced financial status, and a chance to expand its fiber network substantially, indicate that AT&T's stock could perform exceptionally well in 2025.
Reduced debt, steady dividends, and share repurchases
AT&T's past media-related purchases consumed capital and diminished shareholder value. However, its subsequent initiatives to correct these errors have improved the company's financial status over the last few years. Since 2020, AT&T has managed to decrease its net debt by approximately $25 billion. A streamlined debt burden eases the pressure on the balance sheet, allowing the company to invest in its wireless and fiber networks while still offering an attractive dividend to investors.
Over the next three years, AT&T aims to dispense around $20 billion in dividends and repurchase approximately $20 billion of its own shares. Since 2020, AT&T has not elevated its dividend, and it reduced the dividend by two years as part of its WarnerMedia spin-off. Although future dividend growth may be gradual, AT&T now possesses the financial flexibility to reinitiate dividend growth. AT&T might opt to prioritize share repurchases instead, given the stock's still-reasonable valuation.
Even with a steady dividend, AT&T stock currently offers a yield of around 4.9%. This yield mark is historically on the lower side for AT&T, suggesting that a dividend boost could be in the offing in 2025.
Cash flow and fiber prospects
The sale of AT&T's DIRECTV stake will eliminate a source of cash flow. However, cash flow is anticipated to expand at a solid pace in the ensuing years, excluding DIRECTV's contribution.
For 2024, AT&T expects to produce cash flow of around $15 billion after deducting DIRECTV. This metric should oscillate between $16 billion in 2025 and $18 billion in 2027. With a market capitalization of approximately $163 billion, the stock trades at around 9 times its 2027 cash flow guidance.
The expansion of the wireless business will play a crucial role in this cash flow generation, but the fiber business will also contribute. AT&T sees an opportunity to double its fiber customer base in the long run as it targets passing 50 million locations by the end of 2029. Although AT&T's fiber network is expensive to develop, maintenance costs are around 35% less than those of the legacy copper network.
A secondary advantage of expanding the fiber customer base is the opportunity to cross-sell wireless services. While AT&T's wireless customer base is already fairly loyal, customers with both wireless service and fiber service are even less likely to switch providers.
In AT&T's fiber markets, the company has seen postpaid phone churn rates approximately 25 basis points lower than those of non-fiber networks. In households with both fiber and wireless, the fiber churn rate for fiber is 45 basis points lower. These minor disparities across a vast clientele have a significant impact on AT&T's profits.
A promising stock for 2025
Over the past few years, AT&T has made significant strides in rectifying its expensive media-related blunders. The present-day AT&T is more streamlined, concentrating on its best prospects, primarily 5G wireless and fiber. Although the company's forecast could be disrupted by an economic downturn, its strategy seems solid.
With a nearly 5% dividend yield and a still-enticing valuation, AT&T is a superb dividend stock to purchase for 2025 and beyond.
- Given AT&T's substantial reduction in debt, robust cash flow generation, and future cash flow projections, investing in the company's stock could yield attractive returns for money-conscious finance enthusiasts seeking dividend income in 2025.
- With its strategic focus on wireless and fiber services, reduced debt burden, and the potential for dividend growth, AT&T's finance-savvy investors might view the company's stock as a promising opportunity for financing their long-term investment goals in 2025 and beyond.
