AT&T stock price is soaring: How safe is the dividend?

By:
on Apr 12, 2023
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  • AT&T share price has jumped by over 36% from its lowest point in 2022.
  • The company slashed its dividend in 2022 and reduced its debt by billions.
  • The stock has more upside from the current level.

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AT&T (NYSE: T) stock price has recovered modestly from its lowest level in 2022 as investors move on past the company’s dividend cut and the loss of its dividend aristocrat status. The shares were trading at $19.70 on Tuesday, 36% above the lowest level in 2022.

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A good dividend buy?

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AT&T share price has staged a strong recovery in the past few months. In all, investors seem to be moving on after the recent disappointing events from the company. As you recall, AT&T spent over $85 billion acquiring Time Warner a few years ago. The company then decided to undo the deal in 2021 by spinning off those assets and combining them with Discovery to form Warner Bros Discovery. 

As part of this transition, AT&T decided to freeze its dividends in 2021.  And as was expected, the company decided to slash its dividend in 2022, which saw it lose its dividend aristocrat status. This was one of the biggest telecom news stories of the year. Since then, the company has been increasing its investments because of the 5G rollout and reducing its total debt. In 2022, the company spent over $24 billion in capital expenditure, slightly above what Verizon spent. 

AT&T expects to spend a similar amount of money in capital expenditure this year and then move it below $20 billion in 2024. Meanwhile, AT&T has been working to reduce its mountain of debt. It paid over $24 billion in 2022, which left it with a total debt of over $160 billion. Reducing its debt at a time when interest rates are rising seems like a good idea. AT&T hopes that making these payments will reduce its interest expense by over $700 million.

Most people invest in AT&T because of its dividend payouts. The company has a forward dividend yield of 5.67%, which is a few points below Verizon’s 6.63%. Its payout ratio of 40% is also better than Verizon’s 50%. I don’t expect any meaningful dividend growth for the company in the next few years.

AT&T’s business growth will be a bit better in 2023. Analysts believe that the company’s revenue will jump to $122 billion this year from $120 billion in 2022. Its earnings per share is estimated to grow to $1.2.

AT&T stock price forecast

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T chart by Tradingview

The daily chart shows that the AT&T share price has been in a strong comeback in the past few months. It has managed to move above the 50-day moving average and the important resistance at $19.57, the highest level on February 23rd. The shares appear to be eying the important resistance point at $20.47, the highest point on January 31. 

Therefore, I suspect that the shares have more upside in the coming days as buyers target this resistance, More moves above this level will see it rise to the 2022 high of $21.55.

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