AT&T Inc. (NYSE: T) closed Friday at $23.25, marking a 3.6% weekly decline, even as the broader S&P 500 gained 1.05%. The telecom giant's annualized dividend yield now stands at 4.77%, only three basis points above the 10-year Treasury yield, which was 4.743% on Friday. This razor-thin premium highlights the diminishing income advantage for equity investors.
The yield gap is a critical metric for income-focused shareholders. While Treasury bonds offer contractual payments if held to maturity, AT&T's dividend is discretionary, subject to board approval and business conditions. With the spread so narrow, investors are increasingly questioning the risk-reward balance of holding the stock for its payout.
Adding to the pressure, AT&T finalized its $23 billion acquisition of spectrum from EchoStar Corp. (NASDAQ: ECHO) on Tuesday. The deal adds approximately 50 MHz of licenses spanning nearly all U.S. markets, enhancing AT&T's low-band coverage and mid-band capacity. However, the funding strategy—using available cash and additional borrowing—has raised leverage concerns.
Management projects net leverage at roughly three times adjusted EBITDA initially, with a goal of reducing it to 2.5 times over about three years. The company does not expect a significant impact on earnings or cash flow for the next 24 months, but anticipates accretion by the third year. The acquisition represents a substantial commitment relative to AT&T's financial resources: it equals 1.28 times the 2026 minimum free cash flow forecast of $18 billion, 18.2% of second-quarter net debt ($126.4 billion), and 2.3 times planned 2026 share repurchases (about $10 billion).
The stock reaction was immediate: after closing at $24.66 on Tuesday, shares fell 5.7% by Friday. While no causal link is confirmed, investor sentiment appears cautious about the added debt load.
AT&T's second-quarter results, reported earlier, showed resilience. The company added 432,000 postpaid phone accounts and 646,000 new internet connections. Free cash flow rose to $4.7 billion from $4.4 billion a year earlier. Revenue grew 2.3% year-over-year, and adjusted EBITDA increased 5.2%. In comparison, Verizon (NYSE: VZ) saw revenue decline 0.7% but posted $6.4 billion in free cash flow, while T-Mobile (NASDAQ: TMUS) led with 7.9% revenue growth and an 11.7% EBITDA increase, though its free cash flow was $4.8 billion.
Chief Executive John Stankey reaffirmed the company's commitment to shareholder returns, saying, "We are accelerating the pace of our planned share repurchases this year." AT&T now targets approximately $10 billion in buybacks for 2026. This dual commitment to dividends, buybacks, and debt reduction will test management's execution.
Looking ahead, interest rates remain a focal point. The ISM services data for July is due Wednesday at 10 a.m. ET, followed by the July jobs report Friday at 8:30 a.m. ET. If long-term yields climb further, AT&T's dividend yield advantage could vanish entirely, making the stock less attractive to income investors.
Risks include elevated rates pressuring income stocks, potential delays in spectrum deployment, and slower subscriber growth that could hinder deleveraging. Management's projections for leverage and accretion are preliminary and subject to change.
AT&T's regular dividend is scheduled for payment on Monday, providing a near-term test of investor sentiment. The company's ability to balance its capital allocation priorities will be closely watched in the coming quarters.
