AT&T (NYSE:T) released an update on Jan. 5 concerning its telecom and media subscriber growth with no financial figures. The update from Pascal Desroches, AT&T’s CFO, gives shareholders encouraging news on the company’s telecom and media growth prospects. As a result, T stock has been rising as investors are able to see through the fog a bit better.
The fog reference refers to the fact that the media division will eventually be spun-off (or potentially exchanged) into a new company sometime in 2022. However, shareholders still don’t know exactly how many shares they will get in the new company, Warner Bros. Discover (WBD). I have written about the nebulous aspect of the WBD distribution in a prior article on AT&T.
In addition, they also don’t know exactly how low the new T stock dividend will cut, even though the company has provided some parameters. Unfortunately, AT&T continued to avoid this subject in the press release today, as well as in comments made by the CFO at a related Citicorp conference.
The AT&T Update
AT&T reported impressive subscriber growth. For example, they reported a total of 1.3 million postpaid accounts for Q4. This is 6.7% greater than the 1.218 million net postpaid accounts that AT&T produced in Q3.
For all of 2021, the company added 3.2 million net postpaid accounts. This was the highest annual postpaid phone net adds in more than a decade. The company also said that its fiber division had net growth both for the quarter and for the year. That is impressive, especially since so many people have “cut the cord” so to speak and this movement is growing.
Moreover, its HBO growth was impressive as well. It ended the year with 73.8 million total global HBO Max and HBO subscribers. This was higher than the company’s prior guidance. WarnerMedia had told the Street that end-of-year subscribers would be at the high end of its 70 million to 73 million subscriber target.
As a result, the value of the WBD distribution, after being combined with Discovery Inc. (NASDAQ:DISCA), NASDAQ:DISCK, NASDAQ:DISCB) will eventually reflect this growth.
Barron’s magazine recently pointed out that on Jan. 3, Discovery Inc received clearance from the European Commission for the proposed combination of WarnerMedia and Discovery. That is good as it allows the company to progress further to announcing when the WBD combination and distribution will occur.
The only problem is the company still has not provided any definitive timeline, date and details of the proposed combination and related distribution to AT&T shareholders. I find this very strange. It’s almost as if the company is trying to keep its options open as to how to structure the deal up until the very latest opportunity.
What to Do With T Stock
T stock seems to show a lot of optimism about both the telecom operations and the remaining soon-to-be distributed WarnerMedia division (along with its combination with Discovery). The stock has risen from its lows of $22.19 on Dec. 14. As of Jan. 5, T stock has floated back up to $26.21.
Given that the company presently pays an annualized dividend of $2.08, its yield works out to $7.94%. The only issue with this is we know that the company is going to cut the dividend, likely to about $1.15 (see my previous articles on this). However, the spin-off/distribution of WBD will also automatically lower AT&T’s stock price. That will help raise the dividend yield.
The only problem is we don’t know enough about the distribution to adequately determine what the value of the distribution will be.
But just to give an example, let’s say that the value of the distribution is worth $7.00 in AT&T shares. As a result, the net stock price will fall automatically to $19.21 (i.e., $26.21 – $7.00). That would bring the net yield to 6.0%. This is seen by dividing $1.15 by $19.71, or 6.0%.
In other words, shareholders will get a new stock (that may pay a dividend) but, in addition, the rump AT&T stock will have a lower dividend yield (6.0% vs. 7.894%). However, this is just one scenario. When AT&T provides an update to shareholders with real details, we can calculate more precise valuation analysis.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in 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.