I have written several articles about **AT&T** (NYSE:** T**) and its proposed dividend cut. Suffice it to say that once the company spins off its Warner Media division and combines it with

**Discovery Inc**(NASDAQ:

**), the dividend will be cut. That should occur sometime in 2022. For now, though, we can estimate where T stock will end up.**

__DISCA__This is because we can now derive a value for the new company, **Warner Bros. Discovery **(WBD) stock (as it will be named). And, using that value, we can estimate what the new dividend yield will be for T stock.

### Finding the New Dividend Yield for T Stock

Right now, AT&T has a very high dividend yield. At $24.99 per share, and given its annual $2.08 dividend payment (paid quarterly), the yield is 8.32%.

Obviously, this yield is not going to last. Stocks with this kind of high yield imply that a dividend cut is going to happen. In this case, AT&T has already said that it plans on cutting the dividend after the WBD spin-off occurs.

Here is what is going to happen. On May 17, AT&T agreed to combine its Warner Media division with Discovery, Inc. as a separate public company. AT&T shareholders will own 71% of the company (29% to Discovery).

In addition, AT&T said that its new payout ratio (i.e., dividend payment divided by earnings) will be in the “40% – 43%” range. And this is based on “anticipated free cash flow of $20 billion plus.”

That implies that there will be $8 billion to $8.6 billion in dividend payments. On Oct. 29, 2021, there were 7,141 million common shares outstanding, according to its latest 10-Q. Therefore, the dividend payment will be between $1.12 to $1.204 per share (i.e., $8 billion/7.141 billion shares, and $8.6 billion/7.141 billion).

In reality, the payment will likely be closer to $1.15 since there are likely to be more shares outstanding by the time of the spinoff. In turn, this will be a dividend cut from $2.08 to $1.15 — 93 cents lower or a 44.7% drop.

That implies that the new dividend yield will be $1.15/$24.99, or 4.6%. But this is incorrect, and here is why.

### Calculating The New Dividend Yield

Moreover, don’t forget the spin-off of the WBD stock will automatically reduce the T stock price. With that in mind, here is what actually happens. The company will declare and ex-date for the spin-off. On that date, the value of T stock will be “marked down” by market makers by the amount of the value of spin-off. This is the dollar amount in AT&T stock price that Warner Media will represent since those assets will be put into WBD stock.

I believe that we can now estimate what that value is right now, even though the company has not yet released any details of the spin-off. This is because we know that Discovery stock presently reflects the value of its participation as a 29% owner of the future combined WBD company.

Therefore, if we divide Discovery’s market capitalization by 29% we can derive the total value of WBD. For example, according to *Yahoo! Finance*, the total market value for all the classes of Discovery shares is $13.892 billion.

Next, if we divide this by 29%, the result is $47.9 billion. That is the implied value for WBD stock. For example, Discovery shareholders’ future 29% stake in WBD’s $47.9 billion is equal to $13.63 billion, which just under its present market cap.

In addition, AT&T shareholders will own 71% of this $47.9 billion valuation for WBD. Therefore, their stake is worth $34 billion. If we divide this by the 7.141 billion shares outstanding at AT&T, the price per share for AT&T’s stake in WBD is $4.76.

That is the number we are looking for. If we subtract $4.76 from AT&T’s price today of $24.99, we get a net new price of $20.23, post the spin-off. This is the price we can use to determine the new dividend yield.

For example, $1.15 divided by $20.23 equals 5.68%. The new implied dividend yield is 5.68% at today’s price for T stock.

### What To Do With T Stock

The question remains then whether $20.23 is still too high. For example, with a 6% dividend yield, the stock has to trade at $19.17 per share. If we add $4.76 to that price, this implies that T stock should be at $23.93 per share.

That implies that T stock could fall another $1.12 or 4.5% to $23.87 if the post-split dividend yield will be at 6%.

But don’t forget this is just an estimate. We don’t know exactly what the new dividend payment will be. For example, if the dividend is reset at $1.18, then today’s price implies a new post-split yield of 5.62% (i.e., $1.18 / $20.99). That is fairly close to 6% and may imply that T stock is actually near a trough.

Until the company begins to clarify some of these issues, the market will not know exactly where to price T stock. However, all indications are that it is getting close to a trough, assuming that the new yield will be close to 6%.

*On the date of publication, Mark R. Hake did not (either directly or indirectly) own any of the securities mentioned in this article.* *The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.*

*Mark Hake writes about personal finance on ***mrhake.medium.com***and runs the ***Total Yield Value Guide***which you can review **here**.*