Should You Buy AT&T Stock For Its Cash

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AT&T (T) produced free cash flow over the last twelve months equal to 12.5% of its market value, compared with 4.3% for the median S&P 500 company. A cash yield that high usually means the shares trade below the value of the business, investors expect the company to get smaller, or heavy debt makes the shares small next to the cash. So which one is AT&T?

AT&T's Sales And Operating Profit Are Still Growing

AT&T looks less like a shrinking business than its yield suggests, though much of that yield reflects its heavy debt, a distinction that matters for anyone drawn to its cash. Shareholders own a portion of the free cash a company produces, whether the money is paid out or retained, just as they own a portion of its profit. Retained cash still belongs to the owners of AT&T. When investors give it credit, the share price typically follows, particularly when the cash is growing.

The company sells wireless phone service and home internet. Over the last twelve months, AT&T grew revenue 3.5%, following 2.0% growth in the prior twelve-month period. Its operating margin widened to 21.4% from 19.5% a year earlier.

The cash presents a different picture. Capital spending consumed 55.7% of the cash AT&T generated from operations over the last twelve months. Free cash flow, the money left after that spending, totaled $17.8 billion, down from $20.0 billion a year earlier.

AT&T also carries more debt than its shares are worth. The company held $167 billion in net debt at the end of September, compared with a market value of $143 billion. Measured against market value plus net debt, about $310 billion, the cash yield is about 5.7%.

Why AT&T's Debt Rose In The Third Quarter

Management said AT&T's debt rose against its earnings because the company bought spectrum licenses from EchoStar for $23 billion at the end of July. Based on the company's own measures, net debt reached 3.13 times adjusted EBITDA, an operating earnings metric, up from 2.68 times at the end of the second quarter. Over the last twelve months, interest expense totaled $7.47 billion, and operating income covered it 3.7 times.

One part of the business is shrinking by design. Management said service revenue from older copper-based services fell about 25% in the third quarter from a year earlier, as AT&T powers down copper and transitions customers to newer technology. Wireless service revenue grew 5% over the same period. The company also recorded a $2.6 billion non-cash charge in the third quarter tied to its agreement to sell AT&T Mexico.

Management plans to lower the debt ratio by repaying debt with spare cash. In 2027, the company also plans to use proceeds from a fiber joint venture and the sale of the AT&T Mexico wireless business for repayment. Management expects the ratio back at about 2.5 times during 2029.

Can AT&T Grow Its Cash And Cut Debt?

Management expects to achieve both, though these remain forecasts. On its own measure, the company projects about $6 billion of free cash flow in the fourth quarter, compared with $4.2 billion a year earlier.
In October, management also maintained its free cash flow targets, based on its own measure, of $18 billion for 2026, $19 billion for 2027 and $21 billion for 2028. AT&T is expected to report fourth-quarter results in January 2027.

Two questions remain open for anyone buying AT&T for its cash: whether free cash flow climbs back to where it stood a year ago, and whether debt comes down as management plans. When the January report arrives, the fourth-quarter free cash flow will be the measure to watch against management's guide.

How To Act On T?

Not necessarily on AT&T alone, if your goal is long-term wealth. Wealth is built by owning the companies that keep outperforming, the leaders of their industries, wherever they are. Here is one company from AT&T's own industry that has beaten it. Over the five years to October 2026, IDT stock rose 78%, while AT&T stock rose 43%.

Finding companies like these takes comparison across industries and sectors, and that is what the Trefis High Quality (HQ) Portfolio does. It holds 30 quality companies in equal weight and, since its inception in September 2020, has returned more than 105%, ahead of a benchmark that combines the S&P 500, S&P Mid-cap and Russell 2000. See how we find the leaders.

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