AT&T Shows Its 7.7 % Dividend Is Still Safe

AT&T Inc. (NYSE: T | T Price Prediction) reported third-quarter 2020 results before markets opened Thursday. The telecom giant reported adjusted diluted earnings per share (EPS) of $0.76 on revenues of $42.3 billion. In the same period a year ago, the company reported EPS of $0.94 on revenues of $44.6 billion. Third-quarter results also compare to the consensus estimates for EPS of $0.76 on revenues of $41.6 billion.

Consolidated revenues dropped 5% year over year due primarily to the effects of the COVID-19 pandemic. International roaming revenue fell, as did revenue at WarnerMedia and AT&T’s domestic wireless services. Increased advertising revenue from sports programming and higher sales of wireless equipment offset a larger revenue decline.

Operating income fell nearly 23% to $6.1 billion and operating margin fell from 17.7% to 14.5%. After adjusting for amortization and other items, operating income margin fell from 22.2% in the third quarter of 2019 to 19.4%. Free cash flow for the quarter totaled $8.3 billion and net debt fell by $2.9 billion sequentially.

AT&T guided free cash flow for the full year of at least $26 billion, with a full-year dividend payout ratio in the high 50% range. In the third quarter, the company paid out $11.2 billion in dividends, or about 57% of free cash flow totaling $19.7 billion. Capital spending totaled $13.3 billion in the quarter.

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The company did not offer further guidance, but analysts have a consensus forecast for fourth-quarter EPS of $0.75 and $44.2 billion in revenue. For the full year, analysts are looking for EPS of $3.18 and revenue of $169.7 billion.

The company’s entertainment media segment reported quarterly revenue of $10.1 billion, but video revenue (primarily DirecTV) declined by 12.2%. Total operating revenue for the group fell by 10.2%, and operating income margin fell by two full percentage points to 7.7%. Premium TV connections dropped by 16.3% to 17.1 million. Fiber broadband connections rose by 26.6% to nearly 4.7 million.

In the WarnerMedia segment, HBO revenue fell by 2.1% year over year to $1.8 billion, while Turner revenue rose by 5.6% to $3.2 billion. Warner Bros. studio revenue fell 27.7% to $2.4 billion and, for the segment as a whole, operating expenses rose by 4.8%.

Worldwide subscribers to HBO and HBO Max topped 38 million and 57 million, respectively. HBO Max activations more than doubled sequentially and the company said it is on track for a 2021 launch of an ad-supported version of HBO Max.

The company added a million net new postpaid wireless subscribers in the quarter and more than 350,000 new fiber broadband subscribers.

For now, AT&T appears to have the operating cash flow to support both its capital spending requirements and its hefty dividend payouts, and that’s what pushed the share price up more than 6% after the opening bell. At last look, the stock traded up about 5.7% to $28.23, in a 52-week range of $26.08 to $39.70. The consensus price target on the shares is $31.96.

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