Source: PaxForex Premium Analytics Portal, Fundamental Insight

Shares of AT&T recently dipped approximately half a percentage point following the telecom giant's first-quarter results announcement before the market opened on April 24.

The results for the first quarter surpassed Wall Street's expectations, with the company's 5G infrastructure attracting new customers and retaining existing ones more effectively than its competitors. While it wasn't an outstanding quarterly report, the company's ultra-high-yield dividend appears to be stable.

However, before considering an investment in AT&T shares, it's important to note that the company reduced its dividend payout by 46% over two years ago. Although the first-quarter results are promising, management has yet to provide guidance on when it might resume increasing its dividend payout.

Given these factors, is investing in this ultra-high-yield telecommunications stock a wise decision? Below, we'll examine the company's strengths and weaknesses to determine if it's a suitable addition to your portfolio.

AT&T significantly reduced its dividend following the spin-off of its unpredictable media assets, shifting its focus solely to telecommunications. This move potentially enhances the reliability of its cash flow.

With shares of AT&T currently offering a striking 6.7% yield, recent indications suggest that the quarterly dividend is well-supported by increasing profits.

In the past year, AT&T required less than 40% of its generated free cash flow to fulfill its dividend obligations. Management forecasts an increase in free cash flow from $16.8 billion in 2023 to a range between $17 billion and $18 billion this year.

Over recent years, AT&T heavily invested in 5G towers and fiber-optic cables, yielding positive results. In the first quarter, mobility service revenue experienced a 3.3% year-over-year increase. The company is witnessing growth in total broadband subscribers, driven by the ongoing adoption of fiber internet services and the successful launch of a new fixed wireless service, with 54,000 net consumer broadband additions reported over the past 12 months.

Ranked second by revenue, AT&T stands as a prominent player in America's telecommunications landscape and may soon claim the top position. In 2023, it outpaced Verizon and T-Mobile US in non-equipment wireless revenue growth. Additionally, AT&T reported a lower subscriber churn rate compared to its peers in 11 out of the past 13 quarters.

AT&T's investment in its 5G network was substantial, but it came at the cost of servicing a significant debt burden.

Formerly known as Ma Bell, the company closed March with a net debt of $128.7 billion, showing a decrease of about $6 billion compared to the previous year. However, its net debt-to-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio remained high at 2.9 times.

AT&T aims to reduce its debt-to-EBITDA ratio to 2.5 by the first half of 2025, with anticipated revenue growth from new mobility services and broadband subscribers aiding in achieving this goal. While the stock currently offers a high yield, dividend increases may not occur until after the company reaches its debt-reduction target.

The company's debt-reduction plans may not benefit from a lower-interest-rate environment in the near future. Despite hints from the Federal Reserve of potential interest-rate cuts last year, persistently high inflation figures suggest that rate cuts may be delayed.

Despite the hefty investment in its 5G network, AT&T's shareholders are likely to see returns. The availability of fixed wireless solutions for customers located away from fiber-optic cables mitigates the loss of traditional wireline broadband subscribers to other providers.

With mobility service revenue and broadband sales on the rise, AT&T is poised for increasing profitability over the next decade.

While dividend growth may be delayed for another year or two due to debt reduction, adding AT&T shares to a diversified portfolio could prove to be a prudent move for investors willing to wait.

As long as the price is above 16.00, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 16.49
• Take Profit 1: 17.00
• Take Profit 2: 17.50

Alternative scenario:

If the level of 16.00 is broken-down, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 16.00
• Take Profit 1: 15.50
• Take Profit 2: 15.00