Dividend Aristocrat AT&T (T) announced on Monday that its sale of WarnerMedia to Discovery would mean a dividend cut.
In the press release, AT&T expects an “annual dividend payout ratio of 40% to 43% on anticipated free cash flow of $20 billion plus”. Based on this statement the dividend payout would account for around $8 billion with is almost half of the current $15 billion. The current attractive high yield of 6.4%, will be more around 3.5% due to the dividend cut and AT&T’s Dividend Aristocrat status is at risk.
If you look beyond the dividend cut and post-transaction, AT&T is an interesting company with a focus on 5G and Fiber as core business and a good market penetration rate. AT&T will focus on a total return strategy, based on three pillars:
- Investing for Growth
- Attractive dividend
- Debt Reduction
Source: AT&T Investor presentation
Initially, the AT&T stock jumped on the news and traded up about 3%. However, the stock closed on Monday down 2.7% and in the end lost another -5.80% on Tuesday as investors digested the news and realized the impact of the business model reshape and the dividend cut. Year-to-date AT&T is trading 6.50% higher.
Dividend Aristocrats Status
Dividend Aristocrat AT&T has now increased its dividend for 35 consecutive years. The last dividend increase was announced in December 2019 from $0.51 to $0.52 per share quarterly dividend. AT&T hasn’t increased its dividend in 2020 and when it raises the payout to $0.53 at the last payment of 2021, AT&T would still be a Dividend Aristocrat (per the official rules), as the payout for the calendar year 2021 would be higher than that for 2020. Based on the recent developments, the Dividend Aristocrats status will be reviewed, according to Howard Silverblatt of S&P Dow Jones Indices.
AT&T is at the moment of writing the highest dividend yielder as you can see on our dividend aristocrats dashboard.
