This telecom giant is spinning off its media assets to create a tax-free distribution for existing shareholders.
The remaining business still holds great growth potential and should pay a handsome dividend.
Meanwhile the stock trades at just 6.9 times the company’s 2022 earnings forecast.
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AT&T INC. (New York symbol T; www.att.com) is merging its media operations (Warner Bros. studios, HBO, CNN and other cable channels) with Discovery Inc. (Nasdaq symbol DISCA). That will let it focus on its main telecom business.
The company will now hand out 100% of its shares in this new, publicly traded media firm (called Warner Bros. Discovery) to its own investors as a tax-free distribution. The new shares will trade on Nasdaq under the WBD symbol.
AT&T investors will receive 0.24 shares of this new firm for each share they own. As a group, they will own 71% while Discovery investors will hold the remaining 29%. The company expects to complete the spinoff in the second quarter of 2022.
As part of the merger, A&T will also receive $43 billion in cash. It will use that to pay down its long-term debt of $152.7 billion (as of December 31, 2021). That’s a high 92% of its market cap.
Following the spinoff, AT&T will cut its annual dividend rate from $2.08 a share to $1.11. Even so, the stock will still pay investors one of the highest yields —probably around 4%—among large American companies.
Value Stocks: Free cash flow should hold up despite higher expenses
AT&T is also selling Vrio, its satellite TV business in Latin America. The company has not yet revealed the selling price, but it wrote down the value of this holding by $4.6 billion. It expects to complete the sale in 2022.
Meantime, the communications giant signed 789,000 new wireless users (net of cancellations) to long-term contracts in the quarter ended June 30, 2021; it now has 191.6 million wireless subscribers. That’s mainly due to new price-discounted plans and rising demand for smartphones that can use AT&T’s ultrafast 5G wireless networks.
AT&T expects its annual post-spinoff capital expenditures will total $24 billion, up from $21 billion for all of 2021. In addition, it spent $23.4 billion early in 2021 on licences for C-Band wireless frequencies.
In January 2022, AT&T turned on a major part of its 5G network. However, the Federal Aviation Administration (FAA) is concerned about the C-Band wavelengths interfering with aircraft trying to land. As a result, AT&T will delay launching 5G near airports until the issues are fixed.
Shareholders can expect AT&T to have generated $26 billion in free cash flow (regular cash flow less capital expenditures) for 2021. That’s just below 2020’s $27.5 billion.
I find it surprising that the shares of WBD are not allocated to us at the same time as the adjustment in the value of the shares of AT&T in our portfolio!
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AT&T’s stock price has done poorly over 5+ years. Does TSI use the stock price in there evaluation?????
I find it surprising that the shares of WBD are not allocated to us at the same time as the adjustment in the value of the shares of AT&T in our portfolio!