AT&T Inc. (NYSE:T) saw its shares decline approximately 5% in late-morning trading on Tuesday, slipping to a new 52-week low at $20.68. The stock last changed hands at $20.715, extending a two-session drop of about 9.1% that began with a 4.2% decline on Monday.
Key Pressures Weigh on Shares
Investors are focused on two main factors driving the selloff: the potential entry of Starlink mobile services into the U.S. wireless market and AT&T's removal from the Russell Top 50 Index as part of FTSE Russell's June reconstitution. The index rebalancing, which began after the market closed on June 26, affects roughly $12.2 trillion in assets tied to Russell U.S. index products.
Dividend Yield Rises as Price Falls
AT&T's dividend yield has climbed to approximately 5.4% based on the current share price and the annualized common dividend of $1.11 per share. The board set a quarterly payout of $0.2775 on June 24, with a record date of July 10 and a pay date of August 3. The company had 6.965 billion common shares outstanding as of March 31, resulting in a quarterly dividend cost of roughly $1.93 billion.
Free Cash Flow Coverage
In the first quarter, AT&T generated $2.506 billion in free cash flow, with $1.997 billion paid out in dividends, representing a free-cash-flow payout ratio of 79.7%. The company maintained its second-quarter free cash flow target of $4.0 billion to $4.5 billion, which would cover the quarterly dividend about 2.1 to 2.3 times.
Starlink Competitive Threat
The competitive landscape is shifting as SpaceX's Starlink mobile service gains traction. Bloomberg reported that SpaceX and Charter Communications Inc. (NASDAQ:CHTR) held executive discussions about a potential partnership that would have Charter handle some Starlink mobile traffic over its land-based internet system. Starlink Mobile is already available to T-Mobile customers as a $10 monthly add-on for texts and internet calls in remote areas. SpaceX President Gwynne Shotwell told CNBC that Starlink Mobile will far exceed Starlink broadband in the home.
Oppenheimer analyst Timothy Horan downgraded AT&T from outperform to perform on June 3, warning that investors might be underestimating the risk from low-Earth-orbit satellite broadband, as reported by MarketWatch.
Management's Response
AT&T continues to emphasize its fiber and 5G investments as growth drivers. CEO John Stankey told investors at a J.P. Morgan event in May that the company's guidance is sound and that it has never had a year with 7 million fiber passings before. He also stated, "I don't need to pull back" on spending to compete.
Market Context
The broader market, as measured by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), was up 0.4% on Tuesday, contrasting with AT&T's decline. Among peers, Verizon Communications Inc. (NYSE:VZ) fell 4.5% and T-Mobile US Inc. (NASDAQ:TMUS) dropped 4.6% in late-morning trading. Charter Communications slid 4.1%, giving back some of Monday's gains tied to the Starlink rally, while Comcast Corp. (NASDAQ:CMCSA) edged higher.
Upcoming Catalysts
Investors will watch for key dates ahead: the common dividend record date on July 10 and second-quarter earnings, scheduled for release before the NYSE opening bell on July 22, with an earnings call at 8:30 a.m. ET.
