- AT&T stock fell 6% on Tuesday after the company said it would nearly halve its annual dividend.
- The telecom giant announced the plans in conjunction with a spinoff of its WarnerMedia assets, which include HBO.
- AT&T will receive $43 billion from the planned spinoff, which will combine with Discovery.
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AT&T stock fell as much as 6% on Tuesday after investors reacted to news that the telecom giant would slash its closely watched annual dividend by 47%.
The move comes in conjunction with plans to spin off WarnerMedia as part of the division's merger with Discovery. AT&T will receive about $43 billion from the spinoff, and shareholders will own 71% of the newly combined media company. AT&T had originally acquired Time Warner for $85 billion in 2018, which gave it ownership of HBO, among other media properties.
But what investors really care about is the dividend. AT&T has always been known for its sky-high dividend yield, and many retail investors relied on it for income. AT&T currently pays an annual dividend of $2.08 per share, giving it a yield of 8.2% as of Monday.
But by shedding WarnerMedia, management viewed its current dividend payout as unsustainable. AT&T will now pay an annual dividend of $1.11 per share, giving it a dividend yield of 4.3% based on Monday's close. AT&T hasn't had a dividend yield that low since early 2018, according to data from Koyfin.
"In evaluating the form of distribution, we were guided by one objective: executing the transaction in the most seamless manner possible to support long-term value generation. We are confident the spinoff achieves that objective because it's simple, efficient and results in AT&T shareholders owning shares of both companies, each of which will have the ability to drive better returns in a manner consistent with their respective market opportunities," AT&T CEO John Stankey said.
Once the deal closes, AT&T shareholders will receive 0.24 shares of the new Warner Bros. Discovery company for each share of AT&T they own.
Warner Bros. Discovery will trade on the Nasdaq under the ticker symbol "WBD" once the merger closes, which is expected to happen in the second quarter.
