Up Halfway Through 2024, Can AT&T's Stock Continue Its Momentum to Close the Year?

Over the past two decades, the road has been rocky for AT&T (NYSE: T) investors, with the stock price only up close to 5% (not including dividends). This year has been a much-appreciated change of pace, though, with the stock up over 10% in the first six months.

After being scarred from years of lackluster performance, it makes sense that people would question if this is just a fluke from the telecom giant or a glimpse of a turnaround. Nobody can say for certain how a stock will move, but there are encouraging signs for the one thing AT&T has to lean on: its dividend.

Cash flow is improving

It's no secret that investors flock to AT&T for its ultra-high dividend yield . It's why many investors are even remotely in the green with their AT&T investments instead of deeply in the red. The annual dividend is $1.11 per share, and its forward dividend yield is over 5.8% -- more than four times the S&P 500's.

I believe a large part of AT&T's continued momentum is investors' confidence about the long-term security of the dividend. The good news is that the dividend seems well-supported by AT&T's growing free cash flow . In the first quarter, AT&T's free cash flow was $3.1 billion, which was more than enough to cover its dividend obligations.

T Dividend Per Share (Quarterly) data by YCharts.

AT&T projects its 2024 free cash flow to be between $17 billion and $18 billion, which would be more than double its dividend obligations. AT&T spent $8.1 billion on dividends in 2023, and this number should decrease as the company buys back shares and reduces its outstanding shares. So, based on financial performance, AT&T's dividend is as secure as it has been in years.

Debt repayment is progressing

The other part of ensuring AT&T's dividend is secure is ensuring its debt obligations don't get in the way. AT&T has a lot of debt, but it's making progress in paying it down. AT&T's debt was over $128 billion at the end of the first quarter, but it had managed to knock off $6 billion from its tab since the first quarter of 2023.

At the end of the quarter, its net debt-to-adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ) was 2.9. The plan is to have it down to 2.5 by the halfway mark of 2025, which would be a good feat considering where its debt levels were just two-and-a-half years ago.

T Total Long Term Debt (Quarterly) data by YCharts

AT&T hasn't made any promises, but there's a good chance that once it hits its debt target mark and solidifies free cash flow, it will begin making plans to raise its dividend. It had a history of dividend increases before being forced to lower its dividend after its WarnerMedia spinoff.

Knowing the importance of the dividend to investors, you'd have to imagine the company wants to return to that approach.

The core business is getting back on track

Dividend aside, AT&T's business is getting back on track as it refocuses on its core telecom businesses. Its key to long-term growth will be 5G and fiber, and it's making the proper investments to make sure it's competitive in those areas.

In the latest quarter, it added 349,000 postpaid phone subscribers, bringing its total to 71.6 million. Maybe more important is the 0.72% postpaid phone churn (customers who switched carriers). This was a record low for the first quarter and the best in the industry. It also marks the 11th time in 13 quarters that AT&T has led the industry in low churn, showing its strong customer loyalty.

AT&T Fiber customers grew by 1.1 million year over year to 8.6 million and aided in the segment's 19.5% revenue growth over that period. The average revenue per user increased a more modest 4.1%, but that's a testament to the company's ability to convert customers into higher-tier services.

If you're evaluating it based on business performance, AT&T is well-positioned to keep its momentum going. However, it's important to remember that stock prices don't always correlate with business performance, and the stock market is inherently irrational -- at least, in the short term. That said, it's a great long-term dividend stock for income-seeking investors, regardless of how it finishes out the year.

Stefon Walters 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 .