Is AT&T Stock a Good Long-Term Investment?

What a difference a year has made for AT&T (NYSE: T). In November 2023, the stock sank to $15.46, a 52-week low. But on Friday, shares reached a 52-week high of $22.73. The price rise is a reflection of the positive investor attention that AT&T is attracting after its multi-year strategic pivot away from its failed attempt to build an entertainment empire.

The stock is up by more than 30% so far this year. But is this a good time to buy AT&T for the long haul?

AT&T's customer success

One factor driving AT&T's stock price rebound is its strength in attracting customers. In the third quarter, it added 403,000 postpaid phone subscribers -- the telecom industry's most valuable customer segment. It was the 17th consecutive quarter of net growth in postpaid phone subscribers since John Stankey took over as CEO in the summer of 2020.

Those customer additions helped lift its mobile wireless service revenue increase by 4% year over year to $16.5 billion. Mobile service sales are AT&T's most important income source, accounting for 55% of its $30.2 billion in Q3 revenue.

Another component contributing to the company's income is its fiber optic internet service. This business is a strategic priority. Stankey described it as part of AT&T's "converged connectivity" strategy. What this means is that when customers subscribe to either the mobile wireless or fiber optic service, they're increasingly adopting the other product as well.

"This is driving a reinforcing cycle where the success of our fiber business drives growth in mobility and vice versa," said Stankey. In Q3, 40% of fiber customers also purchased AT&T's mobile services, up from 38% in 2023.

The telecom's fiber service added 226,000 customers in Q3. This resulted in consumer broadband revenue rising 6% year over year to $2.8 billion. It was the fiber product's 19th straight quarter of 200,000 or more net customer additions.

AT&T's battle with debt

Another factor bolstering AT&T's stock performance has been the strengthening of its financial health. Before Stankey became CEO, his predecessor spent heavily to acquire media firms such as DirecTV for $48.5 billion. Such costly acquisitions buried AT&T under a mountain of debt that totaled $180.8 billion as of June 2018.

After Stankey was handed the reins, he divested AT&T of those media operations and focused the company's resources on its core telecommunications business. For instance, AT&T sold a 30% stake in DirecTV to a private equity firm in 2021 for $7.8 billion. This past September, the telecom divested the remaining 70% stake for $7.6 billion, putting behind it the last vestige of its attempt to become an entertainment conglomerate.

Those funds will help strengthen AT&T's balance sheet. Its efforts to date enabled it to exit Q3 with a net-debt-to-adjusted-EBITDA ratio of 2.8, putting it on track to reach a reasonable 2.5 or so by the first half of 2025.

To buy or not to buy AT&T stock

Despite its successes, one of AT&T's products remains in decline -- its business wireline service. Companies are switching from legacy landline phones to wireless technology.

This secular trend resulted in AT&T taking a massive $4.4 billion non-cash goodwill impairment charge in the third quarter. In response to the shift in customer preferences, the telecom is providing a new wireless internet and 5G mobile offering for businesses. Revenue from that nascent solution grew 4% year over year in Q3 to $2.5 billion.

With AT&T building up its new business offering, and considering its ongoing success in consumer mobile and fiber services, it appears to be headed in the right direction. Adding to this is arguably one of the most compelling reasons to invest in AT&T for the long haul, its dividend, currently sporting a robust forward yield of 5%.

The dividend serves as a source of passive income, and it's secure since AT&T is growing free cash flow. Through three quarters, its FCF totaled $12.8 billion compared to $10.4 billion in 2023. FCF is a key indicator of the cash available for AT&T to invest in its business, reduce debt, and pay dividends.

AT&T has returned its focus to its core operations, and those businesses are steadily strengthening. That, coupled with its debt reduction and rising FCF, makes AT&T look like a worthwhile long-term investment.

Should you invest $1,000 in AT&T right now?

Before you buy stock in AT&T, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AT&T wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $833,729!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of November 4, 2024

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