AT&T's Free Cash Flow Declined Significantly Last Quarter. Is Its Dividend Still Safe?
Key Points
AT&T's free cash flow was down nearly 20% in its most recent quarter.
For the current year, the company is projecting $18 billion in free cash.
AT&T has been a popular dividend stock, but it hasn't increased its payout for several years.
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Arguably, the biggest reason to invest in AT&T (NYSE: T) is for its dividend. The stock has been a reliable income-generating investment for years, and its yield is fairly high at 4.2%; the S&P 500 average yield is just 1.1%.
A key way to gauge how safe a stock's payout is by looking at its free cash flow. Recently, AT&T reported earnings that showed a deterioration in its free cash. Could this be a sign of trouble for its high dividend, and is a cut inevitable?
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AT&T's free cash declined by nearly 20% last quarter
On April 22, AT&T reported its first-quarter results for 2026, covering the first three months of the year. While revenue looked strong, rising by nearly 3% to $31.5 billion, free cash flow looked a bit concerning. It totaled $2.5 billion for the quarter, which was a sharp decrease from the $3.1 billion it generated in the same period last year.
Free cash flow is the money a company generates from its day-to-day operations after accounting for capital expenditures. AT&T says a key reason its free cash was lower this past quarter was its ramping up of fiber deployment. This can be a troubling sign because if a company expects to spend more on capital projects and expansion efforts, it may leave less money for dividends.
But cash flow fluctuates, and AT&T still projects its free cash to total at least $18 billion for the full year. That's still well above the roughly $8.2 billion it pays in dividends on an annual basis. AT&T also said it expects to maintain its current dividend, which pays $1.11 per share on an annualized basis.
The dividend is safe, but is AT&T's stock worth buying?
AT&T is doing an excellent job of balancing both growth and dividends, making it an attractive stock to hang on to for the long haul. While it may be disappointing not to see any dividend growth from the stock in recent years, it can still provide you with an excellent payout and good value; it trades at a forward price-to-earnings multiple of 11, which is based on analyst expectations.
This is a low-volatility stock that can be an ideal one to hang on to if you're worried about the stock market or just want an investment that can add some stability to your portfolio. AT&T may not be the flashiest stock to own, but it can make for a dependable income-generating investment to buy and hold.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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