Last week, AT&T (NYSE:T) dipped by so much that the stock traded with a dividend that yields 7.3%. After declaring a quarterly dividend of 52 cents on June 25, shares traded ex-dividend on July 10. Why did the stock fall by more than that?
T stock lost almost one dollar and traded below the key 20-, 50-, and 200-day moving averages. Income investors are still wary of the WarnerMedia and Discovery stock spinoff. Once completed, investors get stock in the spinoff company and a lower dividend. The reasons for owning T stock are no longer the same.
When AT&T bought WarnerMedia, it took on a big debt load. That weighed on the stock price for years. The stock moved nowhere in that time while streaming media stocks like Roku, Disney (NYSE:DIS), and Netflix (NASDAQ:NFLX) climbed. Now that movie theatres are open again, AT&T has a better chance of monetizing its studio assets. The timing of the spinoff is poor. Management is effectively punishing shareholders with the spinoff by adding uncertainty.
AT&T will probably benefit from offloading the unit and paying its debts. U.S. The Federal Reserve indicated a preference to raise interest rates by 2023. A rate hike sooner than that would increase the cost of debt and hurt AT&T’s cash flow.
AT&T stock looks attractive at this level. The lower dividend and asset spinoff still reward investors with income and potential capital gains.
