AT&T Stock Is Doing Well After Its Spin-off of Warner Bros Discovery

Summary

AT&T's stock is performing well post-spinoff of Warner Bros Discovery, with both AT&T and WBD shares increasing in value, and there is potential for significant growth based on dividend yield adjustments and future financial strategies.

Abstract

AT&T's stock (T) has seen a positive trend following its spin-off of Warner Bros Discovery (WBD), with shareholders receiving 22 WBD shares for every 100 AT&T shares previously held. Despite a reduction in AT&T's annual dividend payment from $2.08 to$ 1.11, the current yield of 5.68% at the stock price of $19.36 is still attractive to investors. Analysts forecast WBD shares could reach between$ 40 and $50, suggesting substantial upside potential. AT&T's stock itself could target$ 27.75 if the dividend yield lowers to 4.0%, indicating a 43% upside from the current price. The company's CFO has hinted at the possibility of a new buyback program by 2024, which could further boost the stock's value. This spin-off appears to be beneficial for AT&T investors, with the combined value of WBD and AT&T stocks expected to yield a good return on investment.

Opinions

The author believes that the AT&T stock is undervalued and has significant growth potential, with a target price of $27.75 based on a projected 4.0% dividend yield.
Analysts are optimistic about Warner Bros Discovery's future, anticipating its stock value could increase to $40-$ 50 per share.
AT&T's reduced dividend, now more affordable, is seen as a positive move that could lead to a lower dividend yield and, consequently, a higher stock price.
The suspension of AT&T's buyback program since March 2020 could be reversed in the near future, potentially leading to share repurchases that would lift the stock's value.
The author suggests that the combined value of AT&T and Warner Bros Discovery shares post-spinoff could result in a favorable financial outcome for investors.
The author discloses that they benefit from referrals to Medium, emphasizing that the information provided is not personalized investment advice and should not be the sole basis for financial decisions.

Both the AT&T and the WBD shares are up since the spinoff on Monday

Investors in AT&T (T) stock now have their Warner Bros Discovery (WBD) shares (post the spinoff and merger with Discovery, Inc.) in their brokerage accounts. Both stocks have been rising, even though the dividend payment on AT&T stock is lower.

AT&T now pays $1.11 per share annually, making its yield at today’s price of $19.36 equal to 5.68%. To most investors that is a very attractive yield, even though the total dollar payment may be lower than before. Over time the company has said it expects to raise the dividend in line with its free cash flow growth.

However, AT&T shareholders now have 22 shares in WBD for every 100 of AT&T they previously held. The WBD shares are now up to almost $27, from $25 or so when they were first spun out. So, in effect, there has been a positive return for AT&T shareholders.

Moreover, as I explained in my April 11 Barchart article, analysts now expect that WBD could be worth between $40 and $50 per share. There is every good reason to believe that WBD could move to this level, so investors are likely to hold on as they see WBD rising.

Investors in AT&T have had a lot to complain about in the past year. Since peaking at $24.65 last May, the stock is still down over 21%, not including the value of the WBD spin-off shares. Moreover, its dividend has fallen from $2.08 annually to $1.11 now. But maybe looking back is not the best way to look at the stock.

What AT&T Stock Could Be Worth

For example, now that AT&T can more easily afford to pay the dividend, the stock deserves to have a lower dividend yield. That implies that T stock will rise significantly from here.

Let’s say that AT&T ends up with a 4.0% dividend yield. So, if we divide $1.11 by 0.04, we get a price target of $27.75 per share. That implies an upside of over 43% from here.

Moreover, since March of 2020, the company has more or less suspended its buyback program. But now that the company will have more cash flow flexibility, it’s possible they could start a new buyback program.

For example, in a recent Deutsche Telecom conference, the CFO Pascal Desroches indicated that by 2024 the company will have de-levered and have the financial flexibility to consider buybacks then. Doing that will help the company raise its dividend per share and act as a catalyst for a higher stock price.

As a result, investors in AT&T should probably hold on to their shares. The combined value of their WBD and AT&T stock might actually turn out to be a better situation, just as management predicted prior to the spin-off.

The bottom line here is that AT&T stock could rise to at least $27.75 if it obtains a 4.0% dividend yield and WBD stock could be worth between $40 and $50 per share. That presents a very good potential ROI for most investors who received the spin-off shares.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock, bond, REIT, crypto, home, or insurance product as I am not undertaking to induce you to buy or sell any securities or financial assets or home products.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

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AT&T Stock Is Doing Well After Its Spin-off of Warner Bros Discovery

Both the AT&T and the WBD shares are up since the spinoff on Monday

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