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AT&T Is In Free Fall But How Risky Is Its $143B Debt?

May 16, 2023 9:45 AM ETAT&T Inc. (T)165 Comments
Stefan Redlich profile picture
Stefan Redlich


  • Following the spin-off of Warner Media, AT&T's total debt was significantly reduced and currently stands at around $143B.
  • In a period of rising interest rates and concerns about the sustainability of AT&T's dividend, the market has punished the stock tremendously.
  • An in-depth analysis of AT&T's debt helps us to truly understand what matters and what level of risk that high level of debt poses.
  • Comparing how AT&T's debt profile has changed from its record debt levels provides us with insight as to how AT&T is managing its debt.
  • Is AT&T's debt level risky? Is the dividend at risk?

AT&T Stock Jumps On Strong Earnings Report

Brandon Bell

Over at least the last decade investors in AT&T (NYSE:T) have faced challenges due to secular trends of cord-cutting and the rise of streaming platforms. In response, AT&T embarked on a costly and shareholder wealth-destroying strategy, spending over $100 billion on

This article was written by

Stefan Redlich profile picture
I am working as a Business Analyst and Data Engineer in Germany and have started to build up a portfolio focused on Dividend Growth, both on the high and low-end yield spectrum. Primary focus is on Blue Chips with long-reaching dividend track records. I have been investing for 2 years and have been standing on the sidelines for way too long before. I love developing spreadsheets in Google and Excel to analyze financial performance and integrate these two sources with each other!Happy to connect on the various channels!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of T either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not offering financial advice but only my personal opinion. Investors may take further aspects and their own due diligence into consideration before making a decision.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (165)

Charlie's Munger profile picture
Why worry about T dividends when you can buy $KTBA (AT&T/ BellSouth, BBB) 7% '95 in USA: 10% Current Yield, 10% Yield to Maturity, 30% discount to par value, sole underlying *BBB* bond BellSouth 7s '95 Cusip: 079867AP2 is 100ish bid. AT&T has previously tried to buy back entire issue, 3rd parties are trying to steal from retail https://tinyurl.com/3nt74ru4 https://tinyurl.com/ycxdac2x
$KTBA pays .875 on 6/1, 12/1
Expert market, full service brokers only
jsantmyer profile picture
Thank you for the great job in analyzing the debt structure of T. It is much appreciated!
Very nice analysis of AT&T debt. I wonder: is the real issue with AT&T not their debt, which seems management should it continue to be reduced, but their poor management -- which has a history of constantly destroying capital?
jsantmyer profile picture
@James Hacker No, IMO, it is primarily about debt at this time. The M&A misdventures are put behind them by virtue of the stock price reduction.

Many investors are willing to give them the benefit of the doubt going forward.There will always be those that will never forget, but that is on them. Live and learn...

I am convinced that the lessons of wanting to become a high growth company at their size via inorganic M&A have been learned. Their punishment will continue until the debt/EBITDA ratio gets down to the 2.5X level or below.

In the meantime, collect the dividend and dollar cost average down when it makes sense to do so.
18 Jul. 2023
No body likes lead!
@Stefan Redlich Have you sold any of your T since the latest news and are you accumulating more? I noticed you were bullish on T two years ago when it was trading in the 30's.
jesjessie profile picture
my personal opinion is any company , no matter how great they appear to be , with as much debt as $143 billion is waving a huge big red flag for investors , it just takes one wrong management move and all of the cards come tumbling down
Kudos to all. Notably Significant article and fascinating debate comments on this currently “Market-battered” gigantic fundamental US infrastructure stock.
I’m in it as a high-tech IP technology investment.
I’m happy to see this current add opportunity develop. Falling Knife?
Does anyone on here forsee a stock buyback in the very near future?
VoiceofSanitySometimes profile picture
@Craiglist 034334Erd454

I would be a bold move (not sure if "bold" = good), but they won't do it.

They could borrow money to buy back shares, and with the yield where it is it would save money. Especially when you remember that interest on debt is tax deductible, but dividend payments are after tax.

But the bond markets might go ballistic on them, and a downgrade at this time would be very damaging.

I think it is more likely they conserve cash via a div cut.
@VoiceofSanitySometimes You make a point I made several times concerning the fact that tax deductible debt is a much less costly means of financing than high yield stock. Since T has such a large number of shares outstanding, it makes sense to borrow more to do a big buyback. Retiring shares saves a lot more money.

It seems XOM has already figured that out with its $50 billion buyback.T just might do the same, as the case for that is compelling at this stock price. Buying back lots of shares is DE FACTO a dividend cut in and of itself.

A really big buyback would improve T's financial position. Counterintuitive, but nevertheless true. It would also improve its financial flexibility.
Ishi Kenjo profile picture
T's core competency seems to be getting writers to say somewhat beneficial things about them just enough to stay afloat. Stankey & the corrupt board reward themselves, not shareholder's. This is a bloated rotting cadaver. You can't fix stupid. Only an activist investor will make this interesting. They have been experts at destroying shareholder value for over a decade. Can't figure how they still have jobs! So many better options if u want a reliable dividend.
jakeelwood5 profile picture
One of the major issues for T is customer service. Improving customer service to be better than competitors, which should not be difficult, would improve revenues.
One downside to the large debt is customers have to pay a premium for T services to service debt.
Shepferg2 profile picture
AT&T's relationship investment with ASTS has to potential to radically change the nature of cellular service. While a ways out, those who own T should be learning more about ASTS as quickly as possible. There is potential for a huge catalyst here to have a major positive impact on both stocks. The question has moved past 'if" to when. That is a very big deal.
Charlie's Munger profile picture
Why bother w risky T dividends when you can buy $KTBA (AT&T/ BellSouth, BBB) 7% '95. 9% Current Yield, 9.65% Yield to Maturity. Trades 20% discount to par value, sole underlying *BBB* bond BellSouth 7s '95 C: 079867AP2 is 100 bid. AT&T has previously tried to buy back entire issue, 3rd parties now trying to steal them from retail https://tinyurl.com/3nt74ru4 https://tinyurl.com/ycxdac2x
$KTBA pays .875 on 6/1, 12/1
"Expert Market" security, need full service broker, no online discount brokers
This is gold, DYOR
I recall reading somewhere in SA that ATT was receiving a sizable dividend from its remaining ownership share of Direct TV. If so the question arises as to what happens to the free cash flow if Direct can no longer pay this dividend. Given the challenges to Direct’s business, one wonders how it can continue to pay dividends. Does anyone have a handle on this?
cuzin GJ profile picture
With $42B in debt maturing within 4 years, large drop in FCF, and historically inept management- there’s a wall of worry here. Yes, FCF will improve, but not to level stated by mgt. ( certainly they are brainstorming the proper BS answer for the next earnings call ). However, at the current stock price, it’s worth holding on to. Or perhaps start a position below 16.50.
Stefan Redlich profile picture
@cuzin GJ We will see but I am confident debt is no issue at this stage even if FCF falls short of the $16B management targets this year. If they do hit it though, the market needs to substantially reprice the stock.
Elk Tart profile picture
The article itself is illuminating, but the title is absurd, and the author needs to seriously consider whether he wants to be seen as a serious professional or a manic provocateur. "ATT is in free fall." It's $17 now, vs a yearly hi-low of $22-$14. It fell a month ago from 20 to 18, but since then it's been pretty flat. Twisting headlines into fantasy and lies is a job for perfume marketers, not financial analysts.
Stefan Redlich profile picture
@Elk Tart Well, the free fall depends on your time horizon. Sure, it is not in free fall this year but certainly over a 3-5 year horizon especially if you compare it vs the overall market. On top of that, unfortunately, you need attention-grabbing headlines in this time and age to achieve a certain reach and although I try to find catchy headlines I also try hard not to misstate things so that it is not just plain click-bait which I really reject. What would you consider to be a free fall over a 3-5 year horizon vs the market? An underperformance from an already low stock price of more than 60 percentage points should fit that definition in my view.
@Stefan Redlich If you said your car is running low on gas, do you mean it's currently low on gas or it was low on gas some time during the past 3-5 years? Big difference between IS and WAS my friend. Tense matters, especially in this case.
erniem profile picture
I sold T at $30 and bought it at $17. I hope it continues to pay dividends and doesn't go any lower. NO, I won't buy more at the current price.
Stefan Redlich profile picture
@erniem That was a very smart move and well-timed. I wish I could do that :)
"If" and "believe" are the forbidden words; unless strongly substantiated. The article gives a good overview of the debt positions. Then it glides over a big big big red flag: management. Then it more or less copies management info on (future) FCF. No thoughts on its market/moat, market developments or managements genius actions on market problems. The author is rightfully sorry he didn´t get out when he should have.
Stefan Redlich profile picture
@hemerja While I understand your concern, it's important to note that when discussing future projections or possibilities, it is common practice to use such language to convey uncertainty.

Regarding your mention of management, I apologize if the article didn't provide a comprehensive analysis of their actions or address market developments. The focus of the article was primarily on providing an overview of the debt positions and discussing future free cash flow projections based on available information. However, I understand that a more in-depth analysis of management decisions, market dynamics, and competitive moat would have provided a more complete picture.
Robert Furman profile picture
Excellent recap on the debt all the doom and gloomers stir up fear over.

I still say T is a solid dividend payer. It appears that Q1's are problematic for FCF - it was weak in both 22 and 23 now. With a low of $14.46 on 10/13/22, T has had a very solid run up with a resistance high of 20.50 ish. I expect T's dividend to be stable and NOT increased. My expectation of T is to be long term range bound. During dips where Stankey misses on FCF (Q1 is bonus time for the execs - I'm very sure that weak Q 1's will be a repetitive event for T into the future). So we have a range bound stock with a steady dividend that will yield in a 6% to 7.5 % range. T is a classic stock to sell cash collateralized puts out into the future. Collect that premium on top of the 6% dividend and you'll quietly harvest 6 to 7 percent on any shares assigned and add to that a potential 4 to 5 percent additional revenue from selling puts. yesterday at the close I sold January $13.00 puts for .34 and .35. 13.00 -.35 = 12.65 (almost $2.00 below the low of 2022). I doubt they will be assigned but hope they do. $1.11/12.65 = 8.77% yield. If not assigned my $700.00 on 20 January puts returns an additional revenue stream of 2000 shares x's .35 = $700.00. 35 cents/ 12.65(net purchase price if assigned) = 2.37% for eight months = an annualized return of an additional 3.55%. Yesterdays' closing price of 16.53 with the current dividend of $1.11 = a dividend yield of 6.71% plus the annualized put premium of 2.37% to 3.55$ (if you can annualize it all year) puts a return of 9.08 to 10.26 percent. Its time to view this go nowhere stock for what it offers - solid wealth building that if allowed to compound could double your money in less than 8 years. Forget the past and hook up a portion of your portfolio into solid base building of a utility that is active in a needed Oligopoly that extends well into the future. BUY LOW SELL HIGH and collect dividends and put premiums all the way. It is right there for all to see!
Stefan Redlich profile picture
@Robert Furman Thank you for your positive outlook on AT&T and your strategy for generating income through selling puts. Your approach of combining dividends and put premiums seems well-considered. It's important to consider individual investment goals and risk tolerance. AT&T offers potential wealth-building opportunities, especially for those seeking stability and consistent returns. Thank you for sharing your insights.
Weather, yes. Thrive, no. Its a dividend stock and if it can't pay good dividends, what value does it have?
nm10066 profile picture
Ok, good analysis on the debt but debt is hind sight. AT&T's big problem is massive CapX outlay that will be necessary to keep them competitive in the telecommunications market. They are competing with companies like T-Mobil that does not even pay a dividend. This industry has dramatically changed since your granddad’s days. There is every reason to believe AT&T and Verizon will drop their dividend over time. At the present these companies are neither growth companies or reliable dividend growth companies. Stay away, stay away
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