Key Points

AT&T trades near its 52-week low with a dividend yielding more than 5%.
Part of the discount reflects analyst fears about SpaceX's satellite-to-phone ambitions.
The dividend looks well covered, and the threat is years away.
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AT&T (NYSE: T) isn't a stock that usually makes headlines. But lately it has been pulled into one of the market's hottest stories, SpaceX (NASDAQ: SPCX), and the result is a beaten-down share price and a mouth-watering dividend yield.

At about $21 as of this writing, just above its 52-week low of $19.89, AT&T's $1.11 annual dividend yields about 5.3%. Part of the reason the stock sits so low is a growing worry that SpaceX's satellite network could eventually eat into AT&T's business.

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So is that fear justified? And with the yield this high, is the dividend safe? Those are the two questions that matter for income investors here.

Image source: Getty Images.

How real is the SpaceX threat?

Capturing the concern weighing on the stock, Oppenheimer downgraded AT&T stock in June, pointing to SpaceX's Starlink satellites as a structural threat to the telecom's long-term broadband and wireless growth. SpaceX has been developing a direct-to-phone service, and it reportedly plans to launch a Starlink mobile service for U.S. consumers.

That is worth taking seriously. A satellite network that can beam service straight to ordinary phones, with no cell towers required, could chip away at a traditional carrier over time.

But this threat could take years to morph into something meaningful, if it does at all.

Just how significant is the threat? Oppenheimer estimated that AT&T's fiber build could top out nearer 50 million homes rather than 60 million-plus management targets by 2030.

Those are meaningful figures, but they play out through 2030, not the next few quarters. They also sit against a business that is currently growing, not shrinking.

Here's what AT&T is actually doing right now. In the first quarter of 2026, revenue rose about 3% year over year, adjusted earnings per share climbed nearly 12%, and the company posted its best-ever first quarter for advanced connectivity internet net additions. Additionally, it ended the quarter with more than 37 million fiber locations and reaffirmed its target of 60 million by 2030 - the very number Oppenheimer doubts it will reach. Far from being disrupted, AT&T's core businesses are among its brightest spots.

Is the yield safe?

For income investors, this is the question that counts.

The good news is that the dividend looks well protected. AT&T expects to generate more than $18 billion in free cash flow this year, while its dividend costs about $8 billion. That is a payout of less than half of free cash flow - comfortable coverage, even with the company investing heavily in its network and buying back stock. On top of the dividend, management plans about $8 billion in buybacks this year, another way it returns cash to shareholders. Measured against profit, the payout is just as comfortable: AT&T earned about $2.99 per share over the past year against a $1.11 dividend, well under half its earnings.

It's true that free cash flow dipped in the first quarter, to $2.5 billion from $3.1 billion a year earlier, as capital spending rose. That dip reflects investment in the very fiber and wireless network winning those customers, not a business in trouble. Management still expects capital spending of $23 billion to $24 billion for the year and free cash flow above $18 billion.

The valuation adds to the appeal.

AT&T trades at about 7 times trailing earnings and 9 times expected earnings - a deep discount to the broader market, which sits in the low-to-mid 20s. That kind of multiple is normal for a no-growth telecom, yet AT&T is still growing, which makes the discount look overdone. For a profitable, cash-generative business, that is cheap.

So, is AT&T stock oversold?

I think so. The concern is legitimate, and satellite-to-phone technology is worth watching. But it is a slow-moving, decade-long risk, and the market is arguably pricing it as if it were imminent, into a stock whose advanced connectivity internet business just posted a best-ever first quarter for net additions. For income investors who can tolerate a slow grower, a well-covered yield above 5% from a stock trading near a 52-week low looks more like an opportunity than a trap.

AT&T won't grow quickly, and I wouldn't expect much from the share price, but the dividend, at least, looks like it's on solid ground.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.