AT&T’s Time Warner Delay Makes for a Bargain for Investors

AT&T's acquisition of Time Warner assures its dividend for years to come

By Dana Blankenhorn, InvestorPlace Contributor
t stock att

There aren’t many places today where an income investor can safely hide. One of them is AT&T Inc. (NYSE:T).

At its November 14 opening price of about $32.25 per share, AT&T’s 49 cents per share quarterly dividend represents a yield of 5.74%. That is extraordinary.

What is even more extraordinary is that AT&T can afford the payout and is committed to it, having increased it during the Great Recession a decade ago.

As Baby Boomers age out of the workforce, income becomes more important to them than capital gains. As long as T continues along its present path as a dividend stock, it should remain a great place to hide out from economic turbulence.

That’s why AT&T is fighting so hard to complete its acquisition of Time Warner Inc. (NYSE:TWX). Time Warner’s profits will assure the AT&T dividend for years to come.

The AT&T Deal Will Get Done

Based on its third-quarter results, Time Warner would add $1.37 billion of earnings to AT&T’s $3.029 billion. The terms of the deal will give Time Warner shareholders roughly 1 billion shares of AT&T, added to its current share count of 6 billion. So it would require $3.5 billion in income to pay out the dividend, and AT&T would have had about $4.4 billion in net income during the quarter with which to do it.

AT&T usually skates much closer to the edge in its payout. Net income fell below the dividend line in the fourth quarter of 2016, hitting 39 cents per share. AT&T not only maintained its 48 cents per share dividend in response, it raised the payout a penny. That tells you all you need know about its priorities.

Right now, the media is all a-flutter, wondering whether the Trump Administration will succeed in blocking the acquisition.

As a matter of law, it can’t. There is no justification for it. Comcast Corp. (NASDAQ:CMCSA), AT&T’s main broadband competitor, was allowed to buy NBC Universal in 2011. It owns MSNBC, CNN’s main competitor. If AT&T can’t buy CNN, then Comcast can’t own MSNBC. The administration is not going there.

The only questions are how much legal time and political capital will it cost for AT&T to get this deal over the finish line. When we are talking about an $85 billion transaction, litigation costs become minimal in the larger scheme of things.

AT&T vs. Comcast

For investors, the question is then whether you want to buy the new AT&T or Comcast. The performance of Comcast, up nearly 200% since the NBC deal was done, would argue in its favor. T stock price has been flat during that time.

But when Time Warner is added to the mix, the picture changes. The growth in Time Warner’s market cap has been nearly as great as Comcast’s own since 2011. In short, vertical integration works. It has always worked, since the Golden Age of Hollywood, when movie studios were owned by movie theaters. Cable networks are the modern equivalent.

AT&T also has something Comcast lacks, since it’s a dominant mobile carrier. This gives it big opportunities in an age of cord-cutting, where people want to watch their shows wherever they happen to be. AT&T, in other words, can compete well with Comcast in the new environment.

The Bottom Line on AT&T

The choice between Comcast and AT&T is a matter of taste. You buy CMCSA stock for capital gains and you buy T stock for the dividend, because those are the priorities of their managements.

As Baby Boomers age out, we’re going to want income. AT&T, with Time Warner attached to it, is going to look like a very good deal. If you’re under 60, and if you’re looking for capital gains, don’t buy T. But at age 62, it’s my haven in economic storms.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in T.

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