- Significantly misses $3 billion cash flow forecast
- Falls 60% year-on-year to $1 billion
- Investors own AT&T for income, but is 5.6% yield enough
Questions about cash flows are never welcome from stocks known for paying hefty dividends, so it is no surprise that income investors hammered AT&T (T:NYSE) overnight.
Despite beating EPS (earnings per share) estimates, the stock tumbled more than 10% on concerns over growth and lower-than-expected free cash flow.
AT&T reported that its first-quarter cash flow came in at $1 billion, down more than 60% from the previous year. Cash flow forecasts had been pitched at around $3 billion so the miss is significant.
On top of cash-flow concerns, AT&T’s mobile subscriber growth slowed down on a year-on-year basis. During Q1 last year, AT&T added 691,000 subscribers - this year’s Q1 saw that number drop to 424,000.
IS INCOME ENOUGH?
The Dallas-based company is known as a value stock that pays a strong dividend, so concerns over its cash flow are bad news for the company.
According to Morningstar data, the stock is on a 5.6% yield this year. In normal times, this might compensate investors for owning a company struggling to grow, but not so much when inflation is racing ahead and capping future real wealth.
Last year, the $126 billion company paid $9.8 billion in dividends to shareholders from operating cash flows of more than $35 billion, so the payout doesn’t appear to be at risk. At $17.65 (last night’s close), AT&T’s stock is well below its pre-pandemic levels, failing to recover with the overall market.
Morningstar data shows AT&T stock has earned shareholders an average return of just 0.63% a year over the past decade - you could have got 12.4% from an S&P 500 tracker.
Like UK contemporary BT (BT.A), investors will be left wondering if the income yield is enough to justify owning an asset seemingly stuck in decline.
