AT&T's Secret Weapon for 2026: Why Fiber Could Drive Double-Digit EPS Growth

Telecom powerhouse AT&T (NYSE: T) is certainly a respectable company and a great dividend payer. But is it a growth stock? Hardly.

Except, for the foreseeable future, it's going to be putting up growth-like profit improvement.

That's the big takeaway from its recent fourth-quarter earnings conference call. And the chief driver of this growth is a piece of its business that investors typically ignore.

Image source: Getty Images.

Here comes the return on a major long-term investment

That piece is fiber-optic broadband. After several years of significant spending on this infrastructure, including its recent $5.8 billion acquisition of much of Lumen's (NYSE: LUMN) fiber business, things are finally coming together. As CEO John Stankey commented during January's earnings call, "We expect to reach over 40 million customer locations with our fiber services by the end of this year, up from 32 million at the end of 2025." That's a 25% footprint expansion in just one year.

AT&T is more than just fiber-based broadband, of course. In fact, about 70% of its revenue comes from providing wireless service, while less than 15% of its revenue stems from consumer-facing and business-serving fiber-optic connectivity.

That doesn't mean this relatively small business can't be an important profit growth engine for the big telco, though. A consistent 40% of consumers who can subscribe to AT&T's broadband service end up doing so. An additional 8 million crossings should translate into an additional 3.2 million paying broadband customers soon enough, upping this business's headcount by about 30%, from 10.6 million consumers to 13.6 million. That's important given how saturated the United States' wireless market is now, offering little in the way of growth potential beyond price increases. AT&T's average fiber customer is paying on the order of $73 per month for their service, for perspective. That would translate into nearly $3 billion worth of additional revenue per year.

And this may be the crux of the shocking guidance that CFO Pascal Desroches also offered during AT&T's January earnings call. As he plainly stated, "We expect adjusted EPS to be in the $2.25 to $2.35 range in 2026 with a double-digit three-year CAGR through 2028."

One more reason to be bullish

Granted, this is apt to be low-double-digit growth. Analysts' current consensus suggests the company's likely to pump up its per-share profits by only a little more than 10% per year through 2028.

Still, that's pretty impressive for any company in a highly saturated business that isn't known for growth.

Perhaps more important to interested income investors, not only does this impending profit improvement widen the already respectable cushion around the company's ability to continue funding its dividend payment (AT&T's current payout ratio is in the ballpark of just over 50%), but this may be enough progress to restart the annual dividend increases that AT&T suspended in 2022.

Even if that's not in the near-term cards, though, this stock's forward-looking price-to-earnings ratio of less than 10, along with its forward-looking dividend yield of more than 4%, are bullish enough in their own right.

James Brumley has positions in AT&T. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.