Last week, AT&T (NYSE:T) fell 3% and is down 6% on the month. After failing to hold the $29-$30 levels, investors are turning their attention to the telecom giant’s massive debt and failure to monetize its studio division. Is that what is the only thing wrong with AT&T stock?
At a yield of 7.42% and a forward price-to-earnings ratio of 8.78 times, AT&T stock looks like a steal. Short interest is barely 2% (at 1.69%) and income investors may not hesitate to add shares. Plus, the CEO said, back when shares traded in the over $30 range, that it would increase its payout ratio from 50% to 60%.
After the stock declined, raising dividends would not make sense. If anything, AT&T may either buy back stock or use the excess cash flow to pay down debt. In the near-term, risks are higher than ever.
AT&T needs WarnerMedia activity recovering. The unit is burning hundreds of millions quarterly. The company cannot afford to lose money when it needs every cent to pay down its debt. Still, debt refinancing will lower interest costs and buy it time.
AT&T shares may sell-off further only if the technology-led drop continues. Investors who bought it for the income now have capital losses. To offset losses elsewhere, they will also sell T stock to raise cash.
Get ready to buy this stock but wait for the movie business to improve first.
