AT&T: A Stock Poised for Market Outperformance

Identifying stocks that can outperform the overall market is challenging. Recent data from First Trust Advisors reveals that only 28% of stocks succeeded in surpassing the S&P 500 in 2024.

Nonetheless, it is possible to spot stocks that have the potential to outperform. One stock that has recently shown strong performance and is expected to continue on its upward trajectory is AT&T (T -5.41%).

A Long-Awaited Turnaround

After years of underperformance, it seems that AT&T is finally on a path to recovery. From 2016 to 2022, AT&T stock endured a significant decline, losing about 50% of its value. Even with the large dividend payments made during that time, investors saw no meaningful total return after a span of six years.

However, since the beginning of 2023, AT&T shares have rebounded impressively, climbing by nearly 50%. When factoring in dividend payments, shareholders have experienced a total return close to 70%.

This turnaround can be attributed to a strategic shift within the company. AT&T has refocused its efforts by spinning off its pay-TV division (DirecTV) and concentrating on its wireless and fiber connectivity services.

This new strategy has not only streamlined the company’s operations but also generated billions in cash. This cash influx has been crucial in helping AT&T manage its substantial debt, which stood at over $122 billion at the time of writing. Fortunately, this figure is down about 10% from $136 billion two years ago.

Reducing debt is beneficial for several reasons. High levels of debt can become a burden for any company, limiting its ability to invest in growth. Additionally, a heavy debt load raises concerns for value investors, as it threatens the company’s potential to return value to shareholders through dividends or share buybacks.

As AT&T steadily reduces its debt, its dividend payments become more secure. The current quarterly dividend of $0.278 per share has been consistent since 2022, reflecting a dividend yield of 4%, the lowest seen in two decades.

Will AT&T Keep Winning?

The outlook for AT&T appears promising. The company is well-positioned to outperform the market thanks to its renewed focus on its core business alongside several favorable trends.

For instance, by divesting from the pay-TV sector, AT&T can now concentrate on acquiring and retaining customers—especially business clients who require fast and reliable wireless and fiberoptic services.

Moreover, AT&T stands to benefit greatly from the emergence of artificial intelligence (AI). With a vast workforce of approximately 150,000 employees and a customer base exceeding 240 million, the company has the potential to harness AI in transformative ways. If implemented effectively, AI could unlock previously hidden efficiencies, enhance operational processes, and improve customer satisfaction—all crucial for boosting AT&T’s operating margin, which has not reached 25% since the turn of the century.

Despite the existing challenges, such as stagnant revenue and an ongoing need to manage debt, AT&T's recent performance indicates that it has the capabilities to outperform the market. Continued execution of its strategies could indeed make AT&T a standout investment in the coming times.

This article is provided for informational purposes only and should not be considered as investment advice.

Stocks, Investment, Outperformance