After EchoStar Deal, AT&T Stock Can Provide a Dividend—and Price Appreciation, Too

AT&T’s $23 billion acquisition of spectrum from EchoStar shouldn’t endanger its dividend. (Chris Delmas/AFP/Getty Images)

There’s little that’s more frightening to an income investor than a company deciding to spend billions of dollars on a deal—dollars that could be going to the dividend. But in the case of AT&T, which just spent $23 billion to acquire spectrum from EchoStar, the acquisition could make the dividend safer.

Spectrum—the radio frequencies your wireless calls travel over—is the finite resource that every mobile company needs. Just as you can’t have two radio stations in the same city broadcasting on the same frequency, companies like AT&T , Verizon Communications , and T-Mobile US need spectrum for their customers’ calls and data. It’s all managed by the U.S. government via auctions and licenses.

Tuesday’s announcement was a big deal. AT&T said it had an agreement to purchase about 50 MHz of low and mid-band spectrum from EchoStar , adding to the company’s “solid” portfolio. Wireless carriers control hundreds of MHz of spectrum, and AT&T listed $127 billion worth of license assets in its 2024 annual report. The telecom giant touted the deal as covering “virtually every market across the U.S. and positioning AT&T to maintain long-term leadership in advanced connectivity across 5G and fiber” in a press release announcing the deal.

The deal was enormous for EchoStar, which was at risk of losing the spectrum it wasn’t using, and the satellite and wireless communications company saw its stock jump 70% on the deal. Some EchoStar bonds jumped 25%—they had been yielding north of 50% before the agreement and now yield about 14%, with the cash helping to pay off some of its $26 billion in debt.

The acquisition should also be good news for the three top telecoms, notes Citi analyst Michael Rollins. By buying the spectrum, AT&T keeps it out of the hands of a potential new, fourth competitor. “We view this as a positive for the longer-term trading multiples for AT&T, Verizon, and T-Mobile,” he says.

The large outlay doesn’t appear to affect AT&T’s financials in a way that threatens the dividend. The added debt looks manageable, and after the company announced the deal, it maintained its financial guidance—it still expects to earn $2.02 a share in 2025—and its share repurchase plan, which involves buying $20 billion in stock from 2025 through 2027. Business was strong to begin with—the company added 401,000 wireless subscribers and 243,000 fiber internet subscribers in the second quarter—and dividend coverage looks solid, with AT&T returning roughly half of its annual free cash flow to investors.

Citi’s Rollins already had a 90-day short-term catalyst call on the stock, which he rates Buy. He likes the purchase, too. AT&T will use the excess spectrum to beef up its wireless services to the home. “A very logical path for AT&T,” adds Rollins, who notes that the company wants to bundle home and wireless services to boost growth.

He has a $32 price target for AT&T stock, up 10% from Wednesday’s close of $29.06. Combining that with AT&T’s 3.9% dividend yield would result in a 14 % total return over the next 12 months.

Rollins is also a fan of Verizon, which he also rates Buy. A combination of low valuation and sustainable growth underpin his views. He also likes Verizon’s pending acquisition of Frontier Communications , which will beef up the company’s fiber internet offerings. Verizon trades for about nine times estimated 2026 earnings, while AT&T shares fetch 13 times.

While his $48 target for the stock suggests a gain of just 8.4 %, adding Verizon’s 6.2% dividend yield implies a total return of almost 15%, similar t o AT&T. Verizon is the eighth highest-yielding stock in the S&P 500. AT&T is the 60th, with its yield sliding from 5.6% a year ago due to the stock’s outsize strength.

It was only a little more than two years ago, in the summer of 2023 that AT&T was trading below $15 a share on concerns that copper wires sheathed in lead might need replacing to mitigate health concerns. Since then, AT&T has returned about 120%, with a fifth of that return coming from dividends. Verizon stock has returned about 50%, just ahead of the S&P 500 over the same span, with 40% of the total return coming from dividends.

The AT&T spectrum buy should just be another catalyst to boost the share performance of both stocks in the coming year. Income investors should enjoy their dividends—and their capital gains, too.

Write to Al Root at allen.root@dowjones.com