Anticipates Distributing Additional $20 Billion in Cash to Shareholders by 2027, but Not via Enhanced Dividends (as per AT&T)
AT&T's (drop the -T for informality) modern strategic plan, revealed recently, offers investors a peek at its financial projections through 2027. The telecom giant predicts a surge in free cash flow during this period, most of which it plans to distribute among shareholders. While boosting dividends isn't on the agenda—at nearly 5% yield—the company intends to gobble up its shares via a hefty stock buyback program.
The Makeover is Complete
Over the past few years, AT&T has been meticulously revamping its business strategy and financial structure. It's said goodbye to non-essential assets, like its media division and DIRECTV stake. It's also directed its cash flow into expanding its mobile and broadband businesses. Any excess free cash flow after dividends gets channeled into debt repayment.
The results are promising. AT&T anticipates a modest revenue growth rate in the low single-digits through the next three years. It's also optimistic about its adjusted EBITDA, which it expects to increase by 3% or more annually during this period. This positive outlook positions the company to generate a substantial, growing cash flow.
AT&T intends to invest around $22 billion of its annual cash flow into capital expenditures during 2025 to 2027. This strategy sets the stage for a continuous stream of free cash flow, with the company projecting a free cash flow of more than $16 billion next year. It foresees its free cash flow rising by over $1 billion annually, reaching more than $18 billion by 2027.
AT&T continues to advance towards its desired leverage ratio of 2.5 times in the first half of 2022. It plans to maintain this level throughout 2027.
Dishing Out the Cash Returns
AT&T's financial strategy is set to yield about $50 billion of financial capacity over the next three years. This windfall will stem from its growing free cash flow, the anticipated proceeds from selling its 70% stake in DIRECTV ($5.4 billion, expected in mid-2025), and its ability to manage its debt.
The company intends to return more than $40 billion of this additional financial muscle to investors over the next three years. While maintaining its current dividend payout of $1.11 per share ($0.2775 per quarter) will contribute significantly to this sum, the remaining funds will be allocated towards share repurchases.
AT&T's board has authorized an initial $10 billion stock repurchase program, which will commence once the company achieves its leverage target in the coming year. It aims to complete this repurchase program by the end of 2026. In 2027, the company plans to authorize another $10 billion share repurchase program.
Investors who are disappointed with AT&T's decision to stick with its current dividend rate may be reassured to learn about the company's stock buyback plan. Given that AT&T's shares trade at around 10 times its future price-to-earnings (P/E) multiple, a steep discount compared to the broader market, the buyback could enable the company to retire around 10% of its outstanding shares. This would boost earnings per share by a similar magnitude.
The company estimates another $10 billion of incremental financial flexibility during this period. It could allocate this money towards organic investments, acquisitions, debt repayment, dividends, or more share repurchases.
In conclusion, AT&T's meticulous turnaround plan is finally bearing fruit, allowing the company to begin dishing out more cash to investors. While the dividend increase may not have happened, AT&T's stock buyback could yield a higher total return in the long run, considering the relatively low cost of its shares. Additionally, investors will continue to collect a highly rewarding dividend supported by its robust cash flow and financial position. Ideal for those seeking a bond-like income stream alongside potential stock-price growth.
Given that AT&T's financial strategy aims to return over $40 billion to investors over the next three years, this includes both maintaining its current dividend payout and allocating funds towards share repurchases. With the authorization of an initial $10 billion stock repurchase program, AT&T intends to use its excess money in finance and investing, potentially boosting earnings per share and providing shareholders with higher returns in the long run.
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