AT&T ditched its media assets in 2021. This year it wants to add investors.
faces a busy year as she tries to close a divorce from her entertainment company, allay investor worries about its dividend and show that it can continue to win new wireless customers.
The Dallas conglomerate devoted much of 2021 to what amounted to bowel remodeling. It has launched a series of large divestitures spanning pay TV, media production and advertising, moves to refocus AT&T on more predictable growth opportunities from profit centers such as wireless and broadband.
Wall Street analysts broadly welcomed the changes. The share price did not reflect a similar buy-in from investors.
AT&T shares fell 14% in 2021 and briefly touched 12-year lows in December before recovering. The massive sell-off left its dividend yield – a ratio of how much cash a company pays to its shareholders divided by its share price – above 8% at year-end. The S&P 500 gained 27% in 2021.
President and CEO John Stankey called June a “difficult year that has been filled with anxiety.” In December, he said he hoped that within a year “our attention will be completely focused on the future and not on what we need to do to reposition or restructure the business.”
On Wednesday, AT&T said its base wireless unit added about 880,000 postpaid phones in the fourth quarter, surpassing the gain of 800,000 phones during the same period of 2020. The company’s WarnerMedia unit ended 2021 with 73.8 million global HBO subscribers, ahead of its 70 million. to 73 million target.
AT&T announced in May its intention to split WarnerMedia, the entertainment empire it acquired in 2018, into a new joint venture with Discovery Inc. The transaction received approval from European competition authorities in December, but is still under review in the US and other countries.
AT&T shareholders will retain a 71% stake in the creation of new media, so the company’s share price partly reflects the market value of this future media company, which will be called Warner Bros. . Discovery.
The remaining telecommunications company is expected to pay shareholders a lower annual dividend. Executives said the annual payment would drop from around $ 15 billion to between $ 8 billion and $ 9 billion after the media coverage closes. An AT&T spokesperson pointed to executives who said the amount would still make them one of the most profitable companies among dividend payers.
David Jeffress, portfolio manager at Laffer Tengler Investments, said his company owned AT&T shares but sold them in early 2021. He cited dividend cuts among his concerns.
“Once you’ve reduced your dividend and that level of uncertainty is built in, it’s really hard to regain the confidence of a dividend investor,” he said. “We could come back to this at some point in the future, but we would really like to see the dust settle. “
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A second depressing factor for AT & T’s actions has also penalized its close rivals. T-Mobile US Shares Inc.
and Verizon Communications Inc.
sank almost as much as AT&T’s in 2021, as all three carriers offered significant discounts to retain and attract customers.
These rebates, coupled with an increase in federal government grants linked to the coronavirus pandemic, have helped mobile carriers post unusually strong growth. The top three carriers gained nearly 5 million postpaid phone connections – a closely watched measure – in the nine months that ended in September.
The increase in the number of subscribers has made some market watchers wonder how long the good times can last. Jeff Moore, wireless industry analyst for Wave7 Research, compared such explosive growth to the 32 NFL teams winning the same Super Bowl.
“It just doesn’t make sense,” he said. “You would think someone loses and someone else wins.”
““Once you’ve reduced your dividend… it’s really hard to regain the confidence of a dividend investor.”“
AT & T’s rivals have blamed its year-old marketing blitz, which offered big smartphone discounts to new and existing customers, as the start of a race to the bottom that could potentially hurt the bottom line. industry.
AT&T executives have said their wireless customer growth is sustainable. They cited smarter marketing and improved traction in the public safety market, along with discounts, as factors that contribute to their bottom line.
Mr Moore agreed and said Verizon is most vulnerable to the decline in customer growth this year as its retail marketing operations have lost ground to more aggressive rivals. A spokesperson for Verizon declined to comment.
“There is too much skepticism about AT&T,” the analyst said. “They really reversed their results.”
Some shareholders were not prepared to wait. Jerry Braakman, chief investment officer at First American Trust, said his company held shares of AT&T in client portfolios for several years before selling them in December 2020. He said the Pandemic Reorganization of Winners and losers in the film industry prevented AT & T’s WarnerMedia unit from delivering on its promise.
“AT&T looked like they were having difficulty with their strategy, so we decided not to keep lowering something,” he said. “Sometimes you have to cut your losses and move on.”
Other investors are looking to take advantage of the pessimism. Ryan Kelley, chief investment officer and portfolio manager at Hennessy Funds, said his company still owns AT&T shares in a value-style fund that focuses on high dividend yielding stocks.
“With the dividend being what it is and analysts becoming more comfortable with where they are today, we’re hoping for better returns here,” he said. “I hope most of the disadvantages have already been built into the stock.”
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