In April 2022, this firm merged its WarnerMedia entertainment business with Discovery Inc. to form Warner Bros. Discovery (Nasdaq symbol WBD). Investors received 0.241917 shares of WBD as a tax-free distribution for each share they owned. At that time, shareholders owned 71% of the new firm. The company also received $40.4 billion in cash as part of the deal.
Since the split, the shares have made little progress, while WBD’s are down over 60%. That’s mainly due to concerns over the high debt loads of both companies. We feel each will benefit as it focuses on its main operations, but this telecoms giant is in a better position to cut its debt. That reduces its risk and will let it maintain the current dividend rate.
Meanwhile, the stock trades at just 7.6 times the company’s 2024 earnings forecast.
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AT&T INC. (New York symbol T; www.att.com) is the largest wireless (cellphone) carrier in the U.S., with 241.5 million subscribers. It also has 4.2 million traditional phone customers (in 13 states) and 15.3 million high-speed Internet users.
In the quarter ended December 31, 2023, AT&T added 526,000 new mobility subscribers under long-term contracts (net of cancellations). Those new customers helped lift revenue in the quarter by 2.2%, to $32.0 billion from $31.3 billion a year earlier. Due to higher pension costs, a lower contribution from its investment in satellite TV provider DirecTV and a higher tax rate, earnings before unusual items fell 11.5%, to $0.54 a share from $0.61.
Value Stocks: Major infrastructure spending will pay off over the long run
AT&T continues to expand its ultrafast 5G wireless and fibre-optic Internet networks. It plans to earmark between $21 billion and $22 billion for network upgrades in 2024. AT&T also had total debt of $137.3 billion as of December 31, 2023, which is a high 1.1 times its market cap. It also held cash of $6.7 billion.
In response to a recent outage of cellular service, caused by a faulty software upgrade, AT&T will give its customers a $5 credit on their future bills.
In all, the credit will cost the company roughly $140 million. To put that amount in context, it earned $2.14 billion, or $0.30 a share (or $0.54 a share excluding unusual items), in the fourth quarter of 2023.
Despite this added cost, the company will probably earn $2.21 a share for all of 2024, and the stock trades at just 7.6 times that forecast. As a result of the spinoff, AT&T cut its annual dividend rate from $2.08 a share to $1.11. That new rate still gives you a high 6.3% yield.
Recommendation in Dividend Advisor: AT&T Inc. is a buy.
