Is Former Dividend Aristocrat AT&T a Buy After Q2 Earnings?

AT&T reported strong Q2 results, with EPS of $0.54 surpassing consensus estimates and revenues reaching $30.8 billion, driven by 3.5% growth in mobility services and 18.9% in consumer fiber broadband, alongside significant subscriber additions and $4.4 billion in free cash flow. The company executed a $1 billion share repurchase and completed its exit from DirecTV, anticipating $6.5-8 billion in future tax savings. Despite its reduced dividend, AT&T's stock has gained over 19% year-to-date, reflecting positive forward guidance and a "Moderate Buy" analyst consensus, underscoring investor confidence in its operational momentum and strategic focus.

Analysis

AT&T demonstrated robust operational and financial performance in its second-quarter report, exceeding analyst expectations with an EPS of 54 cents against a consensus of 51 cents. The company's revenue grew to $30.8 billion, supported by a 3.5% year-over-year increase in mobility service revenues and a significant 18.9% surge in consumer fiber broadband revenues. This growth was underpinned by strong customer additions, including 401,000 postpaid phone net adds and 243,000 AT&T Fiber net adds. Financially, this translated into $4.4 billion in free cash flow and a $1 billion share repurchase. Strategically, AT&T has sharpened its focus by completing its exit from DirecTV and is positioned to realize $6.5 to $8 billion in tax savings between 2025 and 2027. Despite losing its 'Dividend Aristocrat' status in 2022, the current 4.04% yield appears sustainable with a 68.10% payout ratio. Investor sentiment is decidedly positive, evidenced by low short interest of 1.24%, majority institutional ownership, and a forward P/E of 13.30 that marks a 20.78% improvement over its trailing multiple, suggesting a favorable valuation outlook.

Key Decisions for Investors

• Investors may consider AT&T for a blended growth and income portfolio, supported by strong Q2 results, accelerating fiber revenue, and a 4.04% dividend yield reinforced by share buybacks.
• The successful divestment from DirecTV and expected multi-billion dollar tax savings represent significant long-term tailwinds that de-risk the balance sheet and should be factored into future free cash flow models.
• Monitor execution on the projected 6.07% earnings growth and sustained subscriber momentum in both postpaid phone and fiber, as these are critical to justifying the stock's recent 19% rally and achieving the consensus price target.
• Given the low short interest of 1.24% and a majority of institutional holders increasing their positions, initiating a significant short position carries a high degree of contrarian risk as market sentiment is firmly positive.