Introduction: CNBC’s Jim Cramer recently argued that AT&T (NYSE: T) is “worth owning,” citing a truce in the telecom price wars and the stock’s strong yield with improving earnings (^[1]). AT&T’s core wireless and broadband business is seen as stable and non-cyclical – a defensive play in uncertain times (^[1]). This report dives into AT&T’s fundamentals to assess whether now is indeed the time to buy, examining its dividend policy, cash flows, debt profile, valuation, and potential risks.

Dividend Policy & Cash Flow Coverage

AT&T was long known as a dividend stalwart and Dividend Aristocrat, but it cut its dividend nearly in half in 2022 during the WarnerMedia spinoff (^[2]). The annual payout was reduced from $2.08 to $1.11 per share, ending decades of annual increases (^[3]). AT&T maintained the dividend at $1.11 per share through 2023 (^[3]), reflecting a new, lower baseline. This cut disappointed income investors at the time, but crucially right-sized the dividend to a sustainable level given the company’s refocused telecom business and debt objectives.

Today, AT&T’s dividend yields around 4%–5% after the stock’s recent rebound (^[2]). (At mid-2023 lows, the yield exceeded 7%, highlighting how undervalued shares had become.) The current yield ~4.9% is well above the market average and even above Treasury bond yields, offering an attractive income stream (^[2]). More importantly, the dividend now appears secure. In 2023, AT&T generated $16.8 billion in free cash flow, comfortably covering the $8.1 billion it paid in dividends (roughly a 50% payout) (^[4]) (^[3]). Management has characterized the payout ratio (around 40–50% of free cash flow) as conservative and sustainable, prioritizing dividend stability over growth for now. Indeed, AT&T has held its quarterly dividend steady at $0.2775 per share for eight consecutive quarters (Q2 2022 through Q1 2024) and indicated no near-term plans to raise it (^[3]) (^[5]). This cautious policy allows the company to reinvest excess cash in debt reduction and network expansion while still rewarding shareholders.

Dividend Coverage: The improved coverage is evident in recent results. For example, in Q1 2024 AT&T produced $3.1 billion of free cash flow, easily exceeding its $2.1 billion dividend outlay for the quarter (^[5]). AT&T reaffirmed that it expects ≥ $16 billion in free cash flow for full-year 2025, which “will easily cover” the roughly $8 billion annual dividend commitment (^[5]). Furthermore, free cash flow is projected to grow by ~$1 billion per year in 2026 and 2027, reaching over $18 billion by 2027 (^[5]). If these targets pan out, the dividend payout ratio would steadily decline into the 40% range, strengthening dividend safety (assuming the payout per share remains unchanged). Unless AT&T decides to hike the dividend – which management has hinted is unlikely in the near term – shareholders can expect stable dividends supported by rising cash flows (^[5]).

Shareholder Returns Strategy: With the dividend reset to a sustainable level, AT&T has turned its focus to additional shareholder returns via buybacks. In late 2024, the company outlined a multi-year plan to return $40 billion to shareholders (2024–2026) (^[2]). This includes roughly $20 billion in dividends and $20 billion in share repurchases, with an initial $10 billion buyback authorization by 2026 (^[2]). AT&T’s ability to consider buybacks – after years of using all free cash for debt and dividends – signals confidence in its cash generation and that management views the stock as undervalued (^[2]). Reducing the share count should also incrementally boost earnings per share over time. Overall, AT&T’s capital allocation now prioritizes maintaining a prudent dividend, funding strategic investments in 5G and fiber, and returning excess cash to shareholders (mainly via buybacks) – a more balanced approach than the past decade’s debt-fueled expansion and high payouts.

Leverage, Debt Maturities & Coverage

AT&T has long carried a significant debt load, a legacy of its prior acquisitions (e.g. DirecTV and Time Warner). Net debt peaked around $180 billion in 2019–2020 during its media ambitions. However, the WarnerMedia spinoff and other asset sales have allowed AT&T to meaningfully deleverage. Long-term debt was reduced from a high of ~$176 billion in 2020 down to about $142 billion by mid-2024 (^[1]). As of year-end 2023, AT&T’s total debt (including current maturities) stood at $135 billion (^[3]), with net debt closer to ~$130 billion after cash on hand. The company is steadily chipping away at this burden using free cash flow and proceeds from asset sales. For instance, AT&T sold its remaining 70% stake in DirecTV for $7.6 billion (expected to close by mid-2025) and has been applying surplus cash to debt retirement (^[6]) (^[6]). The net debt-to-EBITDA leverage ratio has improved to around 2.6× as of early 2025, down from the ~3× range a year prior (^[5]). AT&T’s stated goal is to get leverage into the 2.5× area, a target it is now essentially on track to achieve (^[5]). A stronger balance sheet not only reduces risk but also gives AT&T more financial flexibility going forward.

Debt Maturity Profile: A key positive is that AT&T’s debt is largely long-dated, with relatively modest amounts due in the next few years. Only about $7.5 billion (5% of debt) matures in 2024 and $5.4 billion in 2025, with roughly $6–10 billion per year due 2026–2028 (^[3]). Over 80% of AT&T’s debt (~$110 billion) consists of bonds and notes coming due 2029 and beyond, many of them decades out (^[3]). This laddered maturity schedule helps AT&T avoid near-term refinancing crunches. It has time to either repay or refinance obligations gradually as cash flow permits. Notably, a large portion of the debt was issued in a low-rate environment – the weighted average interest rate on AT&T’s outstanding long-term debt is only about 4.2% (^[7]). Indeed, the bonds maturing through 2028 carry coupons mostly in the 3–4% range (^[3]), which is favorable in today’s higher-rate climate. AT&T also uses interest rate swaps and term loans to manage its mix of fixed vs. floating-rate exposure, keeping overall interest costs in check (^[3]).

Coverage and Capacity: Despite the large absolute debt, AT&T’s cash flows and earnings provide solid coverage of interest obligations. In 2023, interest expense was about $6.7 billion (^[3]), while operating income was $23.5 billion and EBITDA (adjusted) roughly $44 billion (^[4]). This implies an EBIT/interest coverage of ~3.5× and EBITDA/interest coverage above 6× – a comfortable margin. Furthermore, AT&T’s healthy free cash flow after dividends (e.g. ~$8+ billion in 2023) is being directed primarily to debt reduction, which will lower interest costs over time. With its investment-grade credit rating (mid-BBB range) intact, AT&T can also refinance debt opportunistically. The company indicates it will continue balancing debt paydown with shareholder returns, guided by a commitment to maintain a strong credit profile (^[3]). Notably, AT&T has over $50 billion of cumulative financial capacity for 2025–2027 (from free cash flow and pending asset sales), of which ~$20 billion is earmarked for dividends and ~$20 billion for buybacks (^[6]). The remaining capacity (~$10 billion) can go toward additional debt retirement or other needs (^[6]) (^[5]). In short, AT&T’s deleveraging efforts are bearing fruit, and its debt maturities are manageable with no major “wall” due this decade. Rising interest rates remain a watch item – new debt or refinancings will come at higher rates – but the bulk of AT&T’s borrowing is fixed-rate and locked in at low coupons for years to come.

Valuation and Peer Comparison

AT&T’s stock has significantly lagged the broader market over the past five years, but this underperformance has left its valuation looking compelling by several measures. Even after a rally in late 2024/2025, AT&T trades at a modest ~10× forward earnings (around $2.20–$2.25 EPS guided for 2024 (^[6])) and approximately 6× enterprise value/EBITDA (^[8]). For context, the S&P 500’s EV/EBITDA multiple is roughly double that, and peer Verizon (VZ) has a similar multiple to AT&T (in the 6–7× range). On a free cash flow basis, AT&T’s price-to-FCF is about 9–10× using 2023’s $16.8B FCF and the recent ~$150B market capitalization – a very reasonable ratio for a stable, cash-generative business. The dividend yield of ~5% also stands out. It not only dwarfs the ~1.6% yield of the S&P 500, but in late 2024 it even exceeded the 10-year U.S. Treasury yield (^[2]). This suggests investors are still assigning a risk discount to AT&T, pricing in its past issues and slow growth prospects. However, such a high yield paired with a conservative payout ratio (under 50% of FCF) is often a sign of undervaluation – unless one expects fundamentals to deteriorate.

Cramer’s case for AT&T being a buy hinges partly on this valuation disconnect. He notes that after years of aggressive competition, “there’s peace among the phone companies” now, so pricing pressure has abated (^[1]). Both AT&T and Verizon are achieving better-than-expected earnings, yet their stocks carry bargain-bin multiples (^[1]). AT&T’s decision to initiate buybacks reinforces the view that management sees the stock as undervalued. In December 2024, AT&T’s analyst day presentation outlined plans for $20 billion in share repurchases, including an initial $10 billion buyback by 2026 (^[2]). Buybacks at the recent trading prices (~$20–$25) would retire shares at a 7%–5% earnings yield, which is accretive to remaining shareholders. Moreover, a buyback can signal insider confidence – AT&T is effectively saying it considers its own stock a better investment than alternative uses of cash, after meeting debt reduction goals. That stance, combined with the high dividend, makes AT&T something of a value play in the telecom sector.

When comparing peers: Verizon likewise offers a high yield (~7% at recent prices) and low P/E, facing similar industry dynamics. T-Mobile (TMUS), by contrast, has enjoyed growth and thus commands a richer valuation (P/E ~20) and pays no dividend. AT&T sits in the middle – not as growthy as T-Mobile, but arguably more stable now than Verizon in terms of subscriber trends. AT&T’s wireless and fiber subscriber growth have been solid (e.g. >\~1.7M postpaid phone adds and 1M+ fiber adds in 2023 (^[4])), which helps dispel the thesis of a “declining telco.” With mid-single-digit service revenue growth and slight EBITDA growth forecast over the next 3 years (^[6]), AT&T is not a no-growth utility – it is slowly growing, yet the stock’s valuation treats it as if revenues were in decline. This mismatch is a central part of the bullish argument. In sum, AT&T’s low multiples and high yield reflect past baggage and cautious sentiment, but also provide upside if the company delivers on its plan. Any re-rating toward even a market-average multiple could lead to significant stock appreciation, on top of the rich dividend yield shareholders collect meanwhile.

Risks and Red Flags

Despite the attractive yield and valuation, AT&T does face several risks and red flags that investors should monitor:

– Stagnant Growth: AT&T’s core businesses – wireless and broadband – are mature and highly competitive. Service revenue is growing only in the low single digits (^[6]). If subscriber growth slows or pricing competition reignites, AT&T could struggle to hit its cash flow targets. The company’s heavy investments in 5G and fiber are aimed at driving growth, but returns are not guaranteed in a saturated market.

– High Debt & Interest Rates: AT&T’s debt remains large (over $130 billion). While near-term maturities are manageable, a prolonged high interest rate environment could make refinancing more costly later on. The bulk of AT&T’s debt comes due after 2028 (^[3]) – if rates stay elevated into the 2030s, interest expense will rise as those bonds roll over. Higher debt costs could eat into free cash flow and constrain future capital returns.

– Lead-Sheathed Cables Liability: In mid-2023, reports emerged about legacy lead-clad telecom cables in AT&T’s copper network potentially leaching into soil and water. This sparked government inquiries and investor anxiety. AT&T has downplayed the issue, noting lead-covered cables make up <10% of its network and are mostly buried or encased (limiting exposure risk) (^[9]). However, the extent of necessary remediation is still being investigated. One analyst firm estimated a worst-case scenario of up to $60 billion in total industry cleanup costs if thousands of miles of old cables had to be removed (^[10]). AT&T likely has the largest exposure if remediation is required (^[10]). While the real outcome will likely be far smaller (and spread over many years), this issue remains an overhang that could lead to legal, cleanup, or replacement costs for AT&T in the future.

– Competitive and Technological Pressures: The telecom sector is highly competitive. Cable companies like Comcast and Charter are bundling mobile service, potentially siphoning some customers. T-Mobile continues to be an aggressive competitor, especially in 5G deployment and marketing (even if outright price wars have calmed). Additionally, new technologies (e.g. fixed wireless access, satellite communications) pose longer-term competitive threats to traditional wired and wireless providers. AT&T must execute on network upgrades (5G, fiber) to stay competitive, which requires substantial ongoing capital expenditures (~$20+ billion/year in capex (^[6])). Failure to keep up in network quality or a misstep in strategy (as happened with past diversifications) could erode its market position.

– Legacy Businesses & Past Missteps: AT&T’s management has a mixed track record – the expensive forays into media (Time Warner) and satellite TV (DirecTV) ultimately resulted in write-downs and reversals. While those distractions are largely gone now, they left the company with lost time and heavy debt. Any similar large-scale strategic pivot in the future would be viewed skeptically by shareholders. Also, AT&T still has some legacy businesses in decline (e.g. traditional copper landlines and U-verse TV) that act as drags on revenue and will eventually need to be wound down or updated. Execution risk is an ever-present factor: AT&T needs to deliver on cost savings and subscriber gains to hit its financial targets, and even seemingly straightforward goals can face operational challenges.

– Regulatory and Legal: Telecom is a regulated industry. Changes in regulation (for example, spectrum auction rules, net neutrality policies, or broadband subsidies) can impact AT&T’s economics. The ongoing lead-cable probes are one example of regulatory risk. Another is any future government scrutiny on industry consolidation or competitive practices. AT&T, as a large incumbent, could face periodic litigation or fines (e.g. consumer protection issues, disputes over network outages, etc.). These events are hard to predict but could create one-time costs or reputational issues.

In short, AT&T’s “dirty laundry” from the past – high debt, past strategic blunders, and lingering liabilities – has not fully disappeared. The company is in a better position now, but investors must be aware of these overhangs. The high dividend yield partly exists because the market assigns AT&T a risk discount for these factors. Whether “now is the time to buy” depends on one’s confidence that AT&T’s stable cash flows and improved focus can outweigh the above risks.

Open Questions for Investors

As AT&T works through its strategic plan, a few open questions remain that could determine the stock’s upside and downside:

– Will AT&T resume dividend growth? The dividend has been held flat at $1.11 since 2022. With payout ratios falling and free cash flow rising, might AT&T consider modest dividend increases again in a couple of years? Or will management stick to the current payout and favor buybacks for returning cash? The timing of any dividend policy change will be closely watched by income investors.

– Share buybacks vs. debt reduction: AT&T has authorized $20 billion in buybacks, including $10 billion by 2026 (^[2]). Will the company actually execute the full buyback plan on schedule? This could depend on share price levels and leverage targets. If the stock rallies significantly or if economic conditions worsen, AT&T might slow its repurchases and prioritize extra debt paydown instead. The capital allocation trade-offs – between accelerating debt reduction versus aggressively buying back shares – remain an open question.

– Can free cash flow meet ambitious targets? Management’s outlook for >$18 billion FCF by 2027 (^[5]) assumes steady operational improvements and no major hiccups. Investors should ask: how realistic are those growth assumptions (about +$1B FCF annually)? Factors like wireless subscriber trends, fiber rollout costs, and any uptick in working capital needs could affect cash generation. AT&T has a recent history of overpromising and underdelivering (e.g. initial 2022 FCF came in under plan), so execution is key.

– Lead-cable liability resolution: What concrete actions will regulators and telecom companies take regarding the lead-sheathed cables? The range of outcomes is wide – from relatively minor remediation (if further studies show minimal risk) to potentially large-scale cable removal mandates. Clarity on this issue may take years, but any interim developments (EPA findings, lawsuits, legislative proposals) could swing sentiment on AT&T. This is a wildcard that investors will be monitoring for any signs of material financial impact.

– Post-2025 strategy and use of cash: By 2025–2026, AT&T should have achieved much of its current plan (debt at target leverage, big 5G/fiber build mostly done, $40B returned to investors). What then? Will capital spending taper off, allowing even more FCF for shareholders? Could AT&T pursue new growth avenues or M&A (hopefully more wisely than in the past)? Essentially, where does AT&T envision itself in the late-2020s once this phase of network investment matures? A clear articulation of the next chapter (e.g. becoming a lean “connectivity utility” focused on cash returns vs. chasing growth) would help investors gauge the longer-term value.

Conclusion: Jim Cramer’s bullish take that “now’s the time to buy” AT&T hinges on the idea that the company’s fortified dividend, improving fundamentals, and refocused strategy are not fully reflected in its low stock price (^[1]). The analysis above shows that AT&T indeed has made tangible progress: the dividend cut and spinoffs have stabilized its finances, free cash flow is covering the payout with room to spare, and debt is trending down. The stock offers a high yield and trades at a discount valuation, indicating a margin of safety if the business can stay on course. At the same time, AT&T is not without challenges – it must prove that it can deliver incremental growth and avoid new pitfalls. For investors, AT&T represents a classic risk-reward trade-off: a potentially undervalued, high-yield stock with defensive qualities, provided one is comfortable with the execution risks and legacy issues still overhanging the company.

In light of the evidence, Cramer’s optimism has merit: AT&T’s fundamental metrics are improving, and management is focused on the right priorities (network investment, debt reduction, and disciplined returns to shareholders). These factors support the bullish case that the stock is a buy at current levels. However, prudent investors will keep an eye on the open questions and risk factors identified. Ultimately, AT&T’s appeal as a “buy now” comes down to confidence in its stable cash flows and the belief that the worst is behind it – a bet that, if correct, could reward shareholders with both steady income and stock appreciation in the years ahead.

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Sources

1. https://insidermonkey.com/blog/jim-cramer-att-t-is-back-worth-owning-with-no-more-price-wars-1509698/
2. https://nasdaq.com/articles/how-att-stock-nyse-t-back-its-winning-ways
3. https://sec.gov/Archives/edgar/data/732717/000073271724000009/t-20231231.htm
4. https://newswire.ca/news-releases/at-amp-t-delivers-strong-2023-results-cash-from-operations-and-free-cash-flow-driven-by-5g-and-fiber-growth-801853860.html
5. https://fool.com/investing/2025/04/25/according-to-this-critical-number-atts-4-yielding/
6. https://cnbc.com/2024/12/03/att-expects-over-18-billion-in-free-cash-flow-in-2027.html
7. https://sec.gov/Archives/edgar/data/732717/000073271725000013/t-20241231.htm
8. https://gurufocus.com/term/enterprise-value-to-ebitda/T
9. https://lightreading.com/optical-networking/at-t-strikes-back-at-lead-fears
10. https://lightreading.com/regulatory-politics/lead-legacy-could-cost-at-t-others-up-to-60b-report

For informational purposes only; not investment advice.