AT&T Will Cut Shareholder Dividends In Half Amid Discovery Deal

Halving The Dividend

Telecommunications giant AT&T (T) is officially getting out of the entertainment business. The plan to spin off its WarnerMedia division in a partnership with Discovery (DISCA) is close to being finalized. The new media entity, of which shareholders will get 0.24 shares for each AT&T share they own, will trade under the ticker “WBD.” Meanwhile, AT&T shareholders will collect roughly half the dividend payout they’re accustomed to receiving.

When the deal is finalized, the annual per-share dividend will be around $1.11, down from $2.08 in 2021. This means what was once a $15 billion dividend cost for AT&T will now be under an $8 billion expense every year. Analysts note this is significant given the stock is widely held and typically pays out one of the largest regular dividends.

Cutting Payouts To Invest Elsewhere

Executives say this strategy is part of AT&T’s shift from media-asset holdings into areas of technological growth. Accordingly, the company plans to pay down its debt and invest in areas like fiber-optic services as well as 5G wireless. Both of these areas require significant investment capital, which market watchers explain is the reason behind the dividend cut and cost-saving measures.

AT&T had previously signaled they’d cut the dividend following the media business spinoff. Now that details have become clearer, executives still contend the company will remain one of the top dividend-yield payers among US stocks. Currently AT&T has a dividend yield of over 8%. For comparison purposes, Verizon Communications’ (VZ) dividend yield was 4.81% based on Monday’s closing prices.

AT&T’s Move Receives Praise

Back in 2018, AT&T overcame regulator objections and purchased HBO, CNN, and Warner Bros. studios. This past May, the company agreed to the spinoff as investors said they remained unconvinced regarding the long-term vision. Analysts weren’t expecting such a drastic cut to the dividend, but some traders are praising the move as it will allow the company to invest in other areas.

AT&T executives contend spinning the media division off and pairing it with Discovery will make it more competitive with Netflix (NFLX) and Disney+ (DIS). Meanwhile, cost-saving measures through dividend cuts will allow AT&T to focus on telecommunications infrastructure, which some investors believe is the company’s strength.

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