Should You Buy AT&T Stock Before Jan. 27?

AT&T (NYSE: T) is a leading telecom provider in the U.S. While investors often load up on the stock for its dividend, it has also generated some decent returns over the past year. During that stretch, the stock has risen by around 36%.

In other good news, its once risky dividend doesn't look so dangerous anymore. The yield has come down due to the stock's solid performance, but it remains high at 5% -- well above the S&P 500 average of 1.3%.

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The company is scheduled to report earnings on Jan. 27. Here's a closer look at whether you should consider loading up on the telecom stock before that report.

AT&T's business is struggling to grow, but it is stable

When AT&T last reported earnings in October, its revenue was down by less than 1% year over year for the period ending Sept. 30, 2024, and adjusted operating income was unchanged from the prior-year period. While the business hasn't been taking off by any means, the company has shown that its operations are stable and that the dividend is well supported with its free cash flow.

For the full year of 2024 -- which the company will be reporting on next week -- the company is projecting free cash flow within a range of $17 billion to $18 billion. That's good news for the dividend, as AT&T pays out about $2 billion in cash per quarter to shareholders, or $8 billion for the full year. With so much room in its free cash flow, it may only be a matter of time before the company announces a dividend hike.

After the company spun off WarnerMedia (which is now part of Warner Bros. Discovery) in 2022, there were question marks about the strength of AT&T's financials and how stable the dividend would be. With those concerns no longer an issue, investors have been more bullish on the stock of late.

How much room could there be for the stock to rally?

AT&T stock is currently trading at a little over 18 times its trailing earnings. That's higher than what the stock has averaged in the past. Here's how it compares against a couple of its key rivals, Verizon Communications and T-Mobile US.

T PE Ratio data by YCharts.

AT&T is trading at more of a premium than Verizon, but far less than T-Mobile, which is more of a growth stock. So the higher valuation may be warranted. When compared to the average S&P 500 stock, which trades at 25 times its earnings, AT&T does look a bit discounted.

However, without a significant increase in profitability, there may not be much room for AT&T's stock to climb a whole lot higher. Telecom stocks that are generating next to no growth aren't likely to be commanding high earnings multiples, especially given their high debt loads (AT&T has more than $126 billion in long-term debt) and with interest rates remaining elevated.

Unless AT&T surprises investors with a big earnings beat, I wouldn't expect the stock to post a big rally after it releases its fourth-quarter and full-year numbers next week.

There's no rush to buy AT&T stock right now

If you're after a good dividend stock to buy, AT&T can be a solid option to add to your portfolio. But there's no rush to do so, because with its valuation not looking terribly cheap, it's not as if this is a heavily undervalued stock which could soar after earnings. There's no reason to expect a big strong performance that surprises the market, either.

AT&T's stock could be trading near or at its peak right now, as its earnings multiple climbing much higher than where it is now appears unlikely. This can be a dividend stock to buy for the long haul, but you may be disappointed if you're still expecting its value to go a whole lot higher this year.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Warner Bros. Discovery. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.