AT&T (T; now down 2.1% after hours) guided to capital spending of about $22B for 2016, and in its Q4 earnings call, CEO Randall Stephenson and CFO John Stephens indicated the company had some work cut out keeping merger integration on track along with other commitments.
"Over the next few years we want to get our debt levels back to where we're comfortable" before talking about a share buyback of any magnitude, Stephenson said, though Stephens noted a key priority: "We're gonna pay our dividends." As for the upcoming spectrum auction, Stephenson was noncommittal but "I haven't been bashful" about grabbing an opportunity for a 2x10 block if it were there, for example.
When it comes to sponsored data -- very much in the wireless conversation, with Verizon introducing its "FreeBee" program and T-Mobile pushing "Binge On" video streaming -- Stephenson said not to be surprised by AT&T's moves there: "We think we have the best premium set of content available to anybody anywhere ... If you think about the most premium set of content ... sports programming, binge programming that has stacking rights, movie rights ... you'd have to assume that sponsored data would be a part of how our customers would take advantage of this kind of content library."
As for the DirecTV merger, the execs believe there's more benefits ahead. "We are early in the process," Stephenson says. "The sales channel is just starting to get their legs underneath them in terms of how to attach satellite to mobility." They expect to get to about $1.5B in run-rate synergies by the end of the year, coming through the Entertainment Group, as margins improve.
AT&T (NYSE:T) reports Q1 earnings tomorrow with its share price almost entirely unchanged from three years ago -- and having slipped about 3% a year (on average) since the summer 2007 launch of the iPhone, exclusively on its network.
That healthy dividend yield of 5.7%, you say? Even including payouts, the company's annualized return trails the S&P 500 by four points since 2007, Spencer Jakab notes.
On the positive side, some heavy spending on infrastructure and Mexico expansion should be wrapping this year, and a decline in phone subsidies is taking some pressure off ... but there's still the price war. And stock buybacks that used to boost earnings growth fell to zero in Q4, he notes.
AT&T reports after the close Wednesday; analysts expect it to post an EPS of $0.61 on revenues of $32.76B (down slightly from Q4's $34.44B) and EBITDA of $10.25B (up from Q4's $9.4B).
AT&T (NYSE:T) is a dividend stalwart, yielding 5.7%, but Morningstar DividendInvestor Editor Josh Peters dropped it from his model portfolio in favor of lower-yielding Verizon (NYSE:VZ).
He's willing to swap for Verizon's 4.5% yield because the "quality, the safety of the dividend, and the growth of the dividend and the total return it will drive are superior."
He lost some patience with AT&T's wandering outside of core business rather than sticking to its knitting and growing the dividend faster than 2%. Verizon is focused on U.S. wireless with better capital allocation, he says.
Coverage plays a part as well: "Verizon is covering its dividend 1.5 times with free cash flow. AT&T is just barely covering its dividend now with free cash."
AT&T (NYSE:T) is up 1% today after meeting EPS estimates lowered by a mobile price war -- while many investors looked past revenue growth and talk of business diversification to maintaining the company's high dividend yield.
The company committed to a lower capex of about $18B for 2015, and it notes a reduction in capex will bring a reduced trailing expense that will help with margins as well as free cash flow.
AT&T "represents a tug-of-war between fundamental investors vs. income-oriented investors," says Morgan Stanley's Simon Flannery. "With the 10-year treasury bond at around 1.8%, AT&T is the highest yield in the Dow Jones."
New guidance is likely to come after the DirecTV (NASDAQ:DTV) acquisition closes sometime in H1 2015.