AT&T Beat on Earnings, Announced a $10 Billion Buyback, and Still Trades at 8 Times Earnings With a 4.6% Yield.

In other words, the dividend and the buyback together consume essentially all of it. That isn’t a hidden problem. It’s the plan, and management said as much. But it does define what an investor is buying: a payout covered with almost no cushion this year — unless, of course, you consider the company’s capital allocated for repurchases a cushion for the dividend. And this would be a fair way to think about it.

But the company’s multi-year outlook suggests there could be greater breathing room for the dividend in the future. Management guided for free cash flow above $19 billion in 2027 and above $21 billion in 2028, against a commitment to return more than $45 billion to shareholders across the three years. Stack those up and the company expects to generate about $58 billion while returning $45 billion, which leaves some runway for paying down debt.

Of course, debt is the part income investors should look at hardest. Net debt stood at $126.4 billion at quarter’s end, or 2.68 times adjusted EBITDA. Management expects that ratio to climb to about 3.2 times once its transaction with EchoStar closes, then work back toward 2.5 times over about three years.

So leverage is going up before it comes down, at a company already returning all of its free cash flow.

That is the trade-off, and I think it’s a fair one at this price. The stock trades at about eight times earnings, though the sharper comparison uses the $2.25 to $2.35 in adjusted earnings per share management guided to for 2026, which puts shares closer to 10 times. Even at the 52-week high of $29.79, that guidance would imply under 13 times.

A 4.6% yield covered by contracted, recurring revenue, from a company that grew adjusted earnings about 20% year over year last quarter while buying back its own stock, is a reasonable thing to own. CEO John Stankey said the accelerated repurchase reflects a gap between the company’s operating fundamentals and how the market values the shares, and the numbers back that up more than they don’t.

I wouldn’t call it a bargain, though. AT&T grows revenue 2% a year — a concerning rate, and one that is just a few percentage points from flipping to a decline.

Still, for income investors, this quarter made the case stronger. The dividend is covered, the fiber business is finally producing the margin expansion it promised, and the stock sits nearly a fifth below its 52-week high. I’d own it for the yield, keep the position modest, and treat the buyback as a bonus rather than the reason.

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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

AT&T Beat on Earnings, Announced a $10 Billion Buyback, and Still Trades at 8 Times Earnings With a 4.6% Yield. was originally published by The Motley Fool