AT&T Cut Its Dividend With the Spinoff. Why It Remains Generous.

AT&T completed its spinoff of WarnerMedia on Friday, and the stocks began trading separately on Monday. The telco’s media segment was subsequently merged with Discovery to create Warner Bros. Discovery (WBD).

That overhaul refocuses AT&T on its telecom businesses in 5G wireless and fiber-optic wired broadband. But it means a smaller company, and with plenty of capital-intensive investment requirements. A dividend reduction was part of the move.

AT&T stock’s total dividend payment was $2.08 per share in 2021, prior to the WarnerMedia split, with the stock yielding north of 8%. The company was booted from the Dividend Aristocrats index because it didn’t increase its dividend last year.

AT&T’s first dividend at the reset rate will be paid on May 2, with a record date of April 14. The quarterly dividend amount will be 27.75 cents per share.

AT&T’s dividend commitment will total around $8 billion annually, for a payout ratio of about 40% of management’s guidance for 2023 free cash flow in the $20 billion range. 

As part of the spinoff, AT&T shareholders received about 0.24 shares of Warner Bros. Discovery stock for each AT&T share they held, in the form of a stock dividend. That’s worth about $5.95 per share based on WBD stock’s closing price of $24.78 on Monday.

The media company doesn’t currently have plans to pay a dividend, but investors can get more than five years worth of AT&T dividend payments up front by selling those shares if they so choose. Or they can put that cash back into AT&T stock.

(Read more from Barron’s on how to handle the tax implications of the spinoff.)

Other top yields in the S&P 500 include Lumen Technologies (LUMN), at 8.7%; Altria Group (MO), at 6.7%; and Devon Energy (DVN), at 6.6%.

Write to Nicholas Jasinski at [email protected]