Today, AT&T (NYSE:T) is in the spotlight; market close will mark the company’s special T stock dividend record date. For a refresher, the dividend concerns the company’s $43 billion spinoff of WarnerMedia. Following the spinoff, WarnerMedia will merge its properties with Discovery (NASDAQ:DISCA). Antitrust regulators and shareholders have already approved the merger, although an exact closing date has not been disclosed. The closing date is expected to be reported in the coming weeks, sometime this April.
At today’s close, for each share of T stock owned, shareholders will receive 0.24 shares of the new entity, Warner Bros Discovery (WBD). However, in order to be eligible for the dividend, shareholders must have purchased T stock before the ex-dividend date, usually the day before the record date.
Here’s what investors should know moving forward.
T Stock: April 5 Is the Special Dividend Record Date
As part of the merger, T stock shareholders will own 71% of WBD. In addition, AT&T has lowered its regular annual dividend to $1.11 from $2.08. The company announced this reduced dividend back in February, causing the stock to sell off. This year, AT&T expects to pay around $8 billion in dividends; in 2021, it paid out roughly $15 billion. The record date for AT&T’s regular dividend is April 14 and will be payable on May 2.
Furthermore, T stock began trading in two different variations yesterday: T and T.WD. If an investor buys or sells T stock, they are buying or selling the AT&T company and the right to receive the special dividend. On the other hand, if they buy or sell T.WD, they are buying or selling the AT&T company but not the right to receive the special dividend. Lastly, shareholders of T stock will not have to pay taxes to receive WBD shares since its a nontaxable event.
What’s Next for AT&T?
Looking forward, AT&T will be able to reduce debt with the proceeds it receives from Discovery. At the end of 2021, the communications company had net debt of over $180 billion. Currently, it carries a net debt to adjusted earnings before interest, taxes, deductions and amortizations (EBITDA) ratio of 3.22. The company has stated it would like this ratio to fall to 2.5 by the end of 2023. If the ratio lowers even further than 2.5, AT&T may consider share buybacks.
The capital AT&T receives from Discovery will also help the company bolster its wireless network. AT&T plans on spending $5 billion this year on 5G improvements “as part of its $24 billion capital spending plan.”
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions 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.
